How taxable is that side hustle?

With Australia going through a major cost of living crisis and interest rates not coming down as
quickly as hoped, more and more people are looking at ways of creating additional cash flow to help
make ends meet.

What is a side hustle?
Earning extra income on top of your primary job is sometimes known as a side hustle. While the
extra money is no doubt welcome, it’s important to stay on top of the tax issues this sort of activity
can throw up.

Side hustles can take many forms and may include:
– posting content to platforms such as TikTok and attracting viewing hours;
– being an influencer on a social media platform and attracting followers;
– picking up casual work through platforms such as Airtasker;
– garden maintenance;
– providing tech support;
– creating content for OnlyFans;
– cleaning business premises or private homes;
– coaching or tuition;
– dog walking or pet sitting;
– freelance writing;
– creating and selling art;
– gold fossicking.

Business or a hobby?
Whether or not the net income from these kinds of activities is subject to tax depends on whether
they amount to a business, and this is where the sometimes fuzzy boundary between a business and
a hobby comes into play.

In determining on what side of the line your activities fall, the following questions have to be
answered:
– does the activity have a commercial purpose?
– do you have the intention of making a profit?
– is the activity conducted in a business-like manner?
– do you advertise or employ people?

In many cases the answer will be obvious – the whole point of a side hustle is to earn extra money so
you can afford to keep paying the mortgage or cover the rent. Getting gigs through Airtasker to
provide services, or picking up garden maintenance jobs would generally be something done with
the intention of making a profit.

Gold fossicking, on the other hand, tends to be something people take up as a hobby. They enjoy
seeing the countryside and any gold nuggets they may find are a bonus. But while occasional finds
involving valuable nuggets might get a run on the evening TV news, they are rare. Most fossickers
would run at a net loss, although whether the activity is actually profitable is not necessarily
determinative.

And what if you own the most adorable cat who enjoys being dressed up and posed for photos?
After putting a few shots up on social media you might be shocked to find you have many thousands
of likes and your cat has more followers than Taylor Swift.

That sort of online attention can be monetised, sometimes for astonishing amounts. It does happen
occasionally, even where there were no expectations of generating any revenue. If all you do is put
up fresh shots on a regular basis and just collect the advertising revenue, you might fall outside the
tax net. It all depends on the facts, but something that throws off a lot of money isn’t always
taxable. We can help you sort out where on the taxable spectrum your side hustle sits.

Tax compliance issues
If the activity falls on the business side of the dividing line, the income from your side hustle is just as
taxable as the income from your primary job. You will need to keep track of all your income and
deductions and pay tax on the net profit.

You will also need to register for GST (and charge GST) if your annual turnover exceeds $75,000.
Registering for GST comes with an Australian Business Number (ABN), although you can apply for an
ABN before reaching the $75,000 threshold. Once you have an ABN you need to keep the details up
to date and cancel the ABN on closing your business.

The net profit from any side hustle that is conducted as a business gets added to taxable income
from your primary job, which can leave you with a tax bill come tax time. To avoid any nasty
surprises you could put aside some of your net profit as you go along to cover the tax bill when it
arrives. How much to put away depends on what tax bracket the combined income from your
primary job and your side hustle puts you in. You can also ask your employer for your primary job to
take out more by way of PAYG deductions by completing a withholding declaration. We can help you
work out the best course of action.

If you make a net loss from your side hustle, but the activity qualifies as a business, you may not be
able to offset the loss against the income from your primary job if the non-commercial loss rules
apply to quarantine the loss until the business grows.

Deductions
What sort of deductions you can claim very much depends on the nature of your side hustle. Bear in
mind that any amounts you may want to claim have to be incurred in carrying on your business and
you cannot claim private expenses against business income. Some things, like car expenses, may
need to be apportioned (and it would be helpful to maintain a logbook or diary that keeps track of
business and private use of your car).

Occupancy costs for your home (mortgage interest, rates and taxes, house insurance) are only
deductible where part of your home is used exclusively as business premises. Using the dining table
in the evenings to prepare invoices doesn’t cut it.

We can help you sort out what is what on the deductions front and prevent your side hustle
becoming a tax hassle.

Super on parental leave pay is now law

Starting 1 July 2025, new parents will receive superannuation payments on top of their paid parental
leave (PPL).

The change
Eligible parents with babies born or adopted from 1 July 2025 will get an extra 12% of their
government-funded PPL as a superannuation contribution to their nominated superannuation fund.
The lump sum superannuation payment will be paid annually by the ATO after the end of each
financial year. The contribution will also include an additional interest component to account for the
delay.

Eligible parents can continue to apply for PPL through Services Australia who are responsible for
assessing eligibility for the payment and superannuation contribution.

Who is eligible?
Currently, parents can get up to 22 weeks of government-funded PPL at the minimum wage, which
will increase to 24 weeks from 1 July 2025 and to 26 weeks by 1 July 2026.
To be eligible, parents must meet the following requirements:
– Have a newborn or have recently adopted a child
– Have met an income test
– Won’t be working during their PPL period, except for allowable reasons 
– Have met the work test
– Have met the residency rules
– Have registered or applied to register their child’s birth with their state or territory birth
registry if they’re a newborn.  
For further information regarding the government-funded PPL scheme see the Services Australia
website.

What about employer-funded PPL?
PPL falls into two categories: government-funded PPL, or employer-funded PPL. If eligible, employees could receive both types.  

Although it is not compulsory for employers to do so, many choose to support their employees with
PPL. Generally, employers will set out a minimum service period that employees need to meet
before they are eligible for employer-funded PPL, and the amount they receive (usually measured in
weeks) varies from employer to employer. Employers will have their own policies when it comes to
parental leave and the available benefits will depend on the employee’s agreement/contract. So
while some employers offer PPL and pay superannuation on top of that, the new laws ensure
parents using government-funded PPL will be able to have the same benefit.

Impact on families

As super isn’t currently paid on government-funded PPL, this change will enable employees to receive super contributions for the period they are on PPL. This change helps close the gap in superannuation savings, especially for women, by ensuring parents receive superannuation while on parental leave, improving financial security in retirement.

The black hole of CGT and trusts

To say that the interaction of the Capital Gains Tax (CGT) laws and trusts is complicated is probably
one of the greatest understatements that anyone could make about the operation of the tax laws.
The laws of physics may be much simpler – and, in this regard, it was Einstein who apparently
quipped that “the hardest thing in the world to understand is the tax law” (when filing his income
tax return in the United States in the 1950s).

That being said, here are a few basic things that are worthwhile noting if you hold an asset in a trust
or transfer an asset to a trust. They are as follows:
– if your home is held in the name of trust – rather than in the name of an individual or
individuals – you cannot get any CGT main residence exemption regardless of what type of
trust it is (unless it is a “special disability trust”);
– if you transfer an asset to a trust, or declare a trust over an asset, there will always be CGT
implications (in the same way that there are always CGT implications in transferring or
selling an asset to a third party);
– there are special rules (and ATO policy) that applies where the trust arrangement involves
“life and remainder interests” ie, where the asset is owned by a trust for the benefit of a
person while they are alive (eg, a surviving spouse) and, on that person’s death, ownership
of the asset reverts to “remaindermen” (eg, children of the spouse);
– if an asset is transferred out of a trust to a beneficiary in satisfaction of their entitlement to
that asset, then there are CGT implications for both the trustee and the beneficiary (and
these implications are specifically set out in the CGT legislation);
– if an asset is held by trust “absolutely” for a beneficiary – so that the beneficiary has an
“indefeasible” right to it – then any actions of the trust in relation to the asset are taken to
be those of the beneficiary (but, first, you have to determine the extremely difficult task of
whether you have such a trust); and
– where a person dies, their assets come to be owned by a trust for the purposes of
administering the estate for beneficiaries – and as you may be aware the rules that apply
can be complex, especially in relation to an inherited family home where a lot of tax-free
capital gains may be at stake.

Finally, of course, if a family trust makes a capital gain from any dealing with a CGT asset, and the
trust wishes to stream that capital to a beneficiary of the trust so that it retains its “character as a
concessionally taxed capital gain” in the beneficiary’s hands, then there are very complex rules
which must be followed. And these rules can impact on how much other income from the trust will
be taxed – and to whom!

If nothing else, this is a matter on which you must seek our assistance, as the rules cannot be
understood by the “average person” – even, if he or she were an Einstein!

What tax receipts do I need to keep?

Work-related expenses
But that isn’t quite right, as the tax rules in fact enable you to make legitimate claims for work-
related expenses for up to $300 in a financial year without having receipts, provided:
– you have spent the money;
– the expense is directly related to earning your income;
– you haven’t been reimbursed by your employer;
– it is not of a private or capital nature; and
– you have a record of the expense (other than a receipt).

Work-related expenses can include, among other things, tools and small items of equipment, office
supplies, union or professional association fees, uniforms and protective clothing and associated
cleaning costs, newspapers and periodicals and many more.

The cost of laundering work uniforms and protective clothing can be included without having
receipts for an amount of up to $150. These costs form part of the $300 deductible limit without
needing receipts. However, where total work-related expenses exceed $300, it is not necessary to
have receipts in relation to costs for laundering work uniforms for these expenses if they do not
exceed $150. The ATO will accept a rate of $1 per load where the laundry is done at home, or half
that amount when accompanied by private items. Dry cleaning costs are not included in the receipt-
free $150. Minor items costing up to $10 can be claimed without a receipt, up to $200 per financial
year, and are also included in the $300 limit. But again, where total work-related expenses exceed
$300, it is not necessary to have receipts for these costs.

The record of the expense can be in the form of a diary that records how much you have spent, what
you spent it on, how you paid for it and how it relates to earning your income. You will need to
retain those records for five years.

Of course, there is nothing wrong with keeping all your receipts as you go along, just in case you
unexpectedly overshoot the $300 limit later in the financial year. Where that happens, you will need
receipts and invoices to substantiate your entire work-related expense claim – not just for the excess
over $300.

Car expenses
Instead of keeping receipts and invoices for the actual running costs of the employment-related use
of your own car, you can elect to claim on a cents per kilometre basis for up to 5,000 business
kilometres. The rate you can claim is 88 cents per kilometre for the 2024-25 financial year (the
maximum claim is $4,400).

The claimable use of a private car covers situations where, for example:
– you visit a client’s premises after arriving at your usual place of work;
– you’re working at another location that is not your usual place of work; or
– you drive to a work-related conference.

The cost of driving between home and work is generally regarded as a private expense.
You won’t need any receipts to claim on a cents per kilometre basis, but you do have to be using
your own car and you will need to maintain a logbook or a diary that records your employment-
related car use. Where two taxpayers use the same car for their respective work-related purposes
they can each claim for up to 5,000 kilometres.

It also needs to be a requirement of the employer that you provide your own transport for work-
related purposes. There was a recent AAT case where the applicant’s cents per kilometre claim failed
spectacularly when it emerged in evidence that the employer provided a company car for traveling
between different work sites.

Note this is not a standard deduction anyone can just claim. The ATO has previously made noises
about how it has noticed there are many claims right on the cusp of the 5,000 kilometre limit and
has been actively challenging some claims.

Working from home
With many employees still working from home in the wake of the COVID-19 pandemic, at least on a
part-time basis, the ATO has developed an administrative method for claiming associated expenses.
Working from home for the purpose of making a claim has to involve something substantive –
minimal tasks such as occasionally checking emails or answering phone calls while at home are not
regarded as enough.

While the option is always there to make a claim using the actual cost method (which would require
receipts), taxpayers can also opt for the fixed rate method, which has been set at 67 cents per hour
since 2023. The 67 cents per hour rate covers:
– energy costs;
– internet expenses;
– mobile and landline expenses; and
– stationery and computer consumables.

Depreciation on office furniture, computers and printers is available on top of the fixed rate
deduction, as are repairs to those items. Since those claims fall outside the fixed rate method they
will need to be supported by receipts or invoices.

A crucial requirement to qualify for the fixed rate method is to keep a diary or a timesheet of the
hours worked from home during the financial year. This record needs to be maintained throughout
the year – making an estimate at tax time will not be sufficient.

While you won’t need comprehensive receipts for the various items covered by the fixed rate
method, the ATO will expect you to retain a sample copy of an invoice, bill or bank statement
verifying you have incurred each of the expenses covered by the fixed rate method. All the
information has to be retained for five years.

The Commissioner doesn’t like work-related expenses much, but Australian taxpayers love them
which is why governments have been wary of getting rid of them.

While there are a number of specific exceptions to the need to have receipts to substantiate
particular claims, all these “concessions” come with conditions attached, mainly to ensure that the
expenses were actually incurred in earning assessable income. It’s important to be aware of all the
legal and administrative requirements so that your work-related expense claim can survive an ATO
audit.

Can you sell your SMSF assets to a related party?

A common question SMSF trustees ask is whether they can sell or transfer their SMSF assets to a related party, like themselves or a family member.

Selling to related parties is possible

While there are rules about what assets an SMSF can buy from a related party, there’s no law that says you can’t sell or transfer SMSF assets, like property or shares, to a fund member or related party.

You can either sell the asset or transfer it from your SMSF to yourself as a member, provided you’ve met certain conditions (like retirement). This is called an “in-specie transfer,” which means the SMSF transfers its asset to you personally.

For an SMSF to sell or transfer an asset to a member or related party, the transaction must be done at market value and on an arms-length basis. This means the sale should be treated like a regular commercial deal, as if there’s no prior relationship between the parties. It’s crucial that the price reflects the true market value of the asset.

Why sell or transfer to a related party?

Superannuation law allows SMSFs to buy assets, such as property, through the fund. However, there are strict rules about how these assets can be used. According to the superannuation “sole purpose test”, your superannuation investments must be used solely to provide you with retirement benefits rather than providing you with current day personal benefits.

For example, if you temporarily stay or live at a property owned by your SMSF, it will fail the sole purpose test. This could lead to your fund losing its tax concessional treatment, and you could face fines or other penalties. To avoid these risks, trustees might choose to sell or transfer assets out of their SMSF to themselves personally.

Alternatively, for members who have retired and can receive their benefits, they can either receive their benefit in cash or by transfer of the fund’s assets. For instance, if a member requires a lump sum payment for a particular reason, say for a holiday, and the SMSF owns a parcel of shares, those shares could be transferred to the member’s personal name rather than the SMSF selling the shares and paying the member a cash payment. However, this type of payment could have tax consequences, so it’s best to seek advice about whether an in-specie asset transfer is appropriate for your personal financial circumstances.

Warning – special rule for members who have a pension and take a lump sum payment

The rules say that pension payments cannot be paid in-specie, that is, pension payments must be paid in cash and cannot be made using assets. So if you have a pension in your fund and want to take a lump sum from it (whether it is a cash or in-specie lump sum), this will not count towards meeting the “minimum pension payment rules” that require you to take a minimum amount each year from your pension account based on your age. So although in-specie lump sum payments from pension accounts are still permitted, a cash payment of the minimum required amount is also needed in order to satisfy the minimum pension payment rules. 

Things to consider

Before selling or transferring SMSF assets to a related party, keep these things in mind:

Selling or transferring SMSF assets to a related party is a valid option for many SMSFs. If you’re unsure about the tax implications or have any further questions, feel free to reach out to us for more information.

What is the right business structure?

If you carry on a business – small or large – the question of which business structure to use always arises – and not just from when you start that business, but also during its operation when it may be beneficial to change from one structure to another. 

Essentially, there are four major ways in which you can carry on a business: as a sole trader, in partnership, or through a company or trust – or even a combination of these (eg, in a partnership of companies and/or trusts).

Moreover, each has their own particular advantages and disadvantages – particularly when it comes to taxation consequences (and the benefits thereof). 

By way of a simple example, if you operate a business in partnership you have the legal problem of being “jointly and severally” liable for any debts of the partnership (ie, you can be personally liable for all the debts of partnership even if they were “incurred” by the other partner). 

On the other hand, there are not a lot of legal formalities to comply with (unlike a company) and, moreover, from a tax point of view you can generally split the income from the business with the other partner/s in the most tax advantaged manner.

Furthermore, and something that is often forgotten, any tax losses made by the partnership can be attributed to the partners – and can be used to reduce tax on their other income. This may be particularly useful in the early stage of a business when losses are more likely to be made.

This is unlike companies and trusts where the losses remain “locked” in the company or trust until such time that there is income against which they can be offset. And even then there are complex rules that prevent such losses being used in this way if, for example, there has not been underlying “continuity in ownership” of the company or trust.

On the other hand, family trusts at least do in effect allow flexible “splitting” of the income or profits made by the trust in a tax-effective way. And companies and unit trusts also allow the same – but in a somewhat more rigid manner.

However, the key point we seek to make is that you can change the structure of your business at any time in its operation – and in regards tax, you can do so usually without any adverse tax consequences because of the various concessions and roll-overs that allow you to do so.

For example, if you have been running your business as a sole practitioner or in partnership you can roll-over your business (ie, the assets that comprise it) into a company or trust without there being any adverse tax consequences. 

Of course, this is subject to meeting certain eligibility requirements – the main one of which is that you remain the beneficial owner of the business in that you remain the controller of the business in the same way you were before the “roll-over”.

And this is just at the simple end of this type of roll-over. In fact, the roll-over provisions now allow you to even roll-over a small business from whatever structure into a discretionary trust structure (with all its tax benefits). But again this is in effect subject to the same “continuity of beneficial ownership” existing both before and after the roll-over.

Finally, and crucially, even in the event you trigger a capital gain on restructuring a small business, the CGT small business concessions should apply to allow you to eliminate or greatly reduce the assessable gain – and to roll-over the gain into buying assets for a new business.

If you are running a small business, and think it is time to do things a bit differently (at least from a tax perspective!) come and see us to discuss all the options and all the advantages and disadvantages of a particular structure. 

Likewise, if you are thinking of starting a business for the first time, come and speak to us to work out what type of structure would best suit you at the start of your entrepreneurial adventure.