June heralds the end of the financial year and amongst the many sales and spending sprees, it’s also time to consider your taxes.
Most of the time lodging your tax return is a pretty straightforward process, unless you’re trying to claim some wild expenses, but things get a little more complicated if you’re claiming a side hustle or extra job.
With that in mind, we spoke to some accountants and the Australian Tax Office (ATO) to find out what Australians with a side hustle need to consider at tax time.
What is the process for claiming an extra job?
For starters, any kind of work you’re getting paid for, whether it be cash-in-hand or into your bank account, needs to be reported on your tax return. This occurs whether you’re an employee, independent contractor, small business owner or if it’s just a one-off payment for work — it is all assessable.
You can see all the types of income you need to declare on the ATO’s website.
When it comes to completing your tax return you’ll want to complete the business questions if you own a small business or the employment questions if it’s a second job.
Mark Chapman, Director of Tax Communications at H&R Block, warns that the business section of tax returns can get quite complex so it’s recommended you go to a tax agent in order to avoid mistakes.
Don’t rush your tax return
As soon as we click over into July there’s often a flurry of activity as people rush to lodge their tax and get those sweet tax return dollars.
The ATO warns people against lodging their tax return too quickly because certain elements, like bank interest or government payments, could get missed:
This information is usually ready by the end of July, so if you are lodging before then it’s important that you take some extra time to carefully make sure that everything is included. This will make the tax return process smoother, save you time and get your tax return right.
This includes your employment income statement which should be marked ‘tax ready’ before lodging to avoid surprising bills later. If you have more than one employer or source of income linked to your Tax File Number wait for all your statements to be marked ready.
What expenses can you claim?
Like a primary job, if you have a second source of work or a side hustle you can claim deductions on your tax return, provided you have proof.
Chapman says you claim expenses for any of your jobs provided they directly relate to your work:
You can claim any expenses that you incur for each of your jobs provided the expense directly related to your job, that you weren’t reimbursed by your employer and that you can prove that you spent the money (for instance, you have a receipt or an invoice).
For example, if you drive for Uber or a rideshare company you can claim expenses related to purchasing or running your vehicle. If you make money by renting a room through Airbnb you can claim a portion of property-related expenses such as cleaning, electricity and cable subscriptions. If you do gigs on a platform like Airtasker you can claim travel expenses and the cost of any tools or equipment you need to complete your tasks.
Chapman also shared that while many of these economy platforms take a fee or commission out of the price you charge for your services, these are all tax-deductible.
The ATO also has nearly 40 occupation and industry guides outlining the work-related expenses people working in these occupations can and can’t claim deductions for.
When it comes to knowing what you can and can’t claim, ATO Assistant Commissioner Tim Loh said:
Don’t rely on what other people claim as a guide to what you can claim. Every job is different, and what is legitimately related to earning an income for one occupation may not qualify in another.
Chefs may be able to claim knives and hairdressers may be able to claim scissors, but a train driver or a salesman making the same claim would probably get knocked back.
Even if your co-workers make a claim, you can only make a similar claim if you meet the three golden rules — you must have spent the money yourself and weren’t reimbursed, it must be directly related to earning your income, and you must have a record to prove it.
One extra thing you can claim if you have a second job is travel between workplaces on the same day. So if you finish one job and travel directly to your next job you can claim a deduction for the costs of travel — whether you go by car or public transport.
What documents should you keep track of?
When it comes to claiming deductions and income at tax time you’re going to need proof.
Emma Fawcett, General Manager at MYOB, recommends business owners keep track of:
- Receipts for deductions they plan to claim
- Invoices for sales income made during the year
- Statements from the bank or financial institution showing interest earned and paid during the year
- Contracts for capital acquisitions or improvements
- Any government relief measures adopted
Fawcett also recommends keeping two distinct bank accounts — one for personal use and one strictly for business use.
Keeping finances separate provides a more accurate picture of business expenses and cashflow and makes tax time simpler. It’s also key to be organised throughout the year and not leave all the preparation to the end of the financial year. Utilise technology tools that can help you keep track of your documentation to take the stress out of tax time.
The ATO also has a handy myDeductions tool within the ATO app.
What if your side hustle becomes more permanent?
If things are going well in your side hustle or freelancing work, you might be thinking of turning it into a more permanent business. If that’s the case there’s a bunch of things you’ll need to consider.
According to the ATO:
If your side hustle becomes a side business, you will need to consider your tax obligations including the need for an ABN, registering for GST, implementing a record-keeping system to track income and expenses and a plan for paying tax you owe when you lodge your activity statements and annual income tax return.
When it comes to claiming a business deduction there are three golden rules the ATO considers:
- The expense must have been for your business, not for private use.
- If the expense is for a mix of business and private use, you can only claim the portion that is used for your business — for example, if you buy a laptop and use it 50% of the time for your business and 50% of the time for private purposes, you can only claim 50% of the amount as a deduction.
- You must have a record to prove it.
What to do if you make a mistake
So you made a mistake on your tax return? Hey, it happens! Thankfully there are ways to amend it.
If you’ve made a mistake or forgotten to include something you can amend your tax return through the ATO’s online services on myGov or by contacting your tax agent.
Remember, the ATO is cracking down on a number of things in tax returns this year so make sure you follow all the proper processes.