Do I need to declare side hustle income: Side hustles & tax mistakes

Whether you’re freelancing, selling products online or creating content on social media, earning money outside your regular job often comes with tax obligations. Picture Shutterstock

A side hustle can be a great way to boost your income, but it can also add an extra layer of complexity at tax time.

Whether you’re freelancing, selling products online, driving for a rideshare service or creating content on social media, earning money outside your regular job often comes with tax obligations people don’t always expect. According to tax professionals at H&R Block, questions about side hustle income and deductions are among the common issues Australians seek help with each year.

From incorrectly assuming an activity is “just a hobby” to overlooking income that needs to be declared, many of the most common tax mistakes are also the easiest to avoid.

The most common side hustle tax mistakes (and how to avoid them)

Mistake #1: Assuming your side hustle is “just a hobby”: One of the biggest misconceptions is believing a side hustle doesn’t need to be declared because it only earns extra spending money. Whether your activity is a business or a hobby affects your tax obligations. H&R Block says this is one of the most common areas of confusion at tax time. Whether an activity is a hobby or a business is assessed based on a range of factors, including your intention to make a profit, how regularly you operate and whether your activities are organised in a business-like way.
Mistake #2: Forgetting to declare all your income: Income earned through rideshare driving, food delivery, online marketplaces, freelance work and content creation may all need to be declared in your tax return. The ATO receives information from many digital platforms through its data-matching programs, so it’s important to ensure all income is reported correctly.
Mistake #3: Missing deductions you’re entitled to claim: If your side hustle is considered a business, you may be able to claim deductions for eligible expenses directly related to earning your income. Eligible expenses may include platform fees, website hosting, software subscriptions, insurance, equipment and work-related internet expenses, depending on your circumstances. Keeping good records throughout the year can help ensure you don’t miss out on deductions you may be entitled to claim.
Mistake #4: Claiming expenses incorrectly: Many side hustlers use the same phone, internet, car or home office for both personal and work purposes. Only the work-related portion is generally deductible, so it’s important to keep appropriate records and correctly apportion any mixed-use expenses.
Mistake #5: Forgetting to plan for tax: Unlike regular employment, tax often isn’t automatically withheld from side hustle income. Depending on how much you earn, you may need to set money aside throughout the year or pay Pay As You Go (PAYG) installments to help manage your tax obligations.
Mistake #6: Leaving record keeping until tax time: Trying to find receipts and invoices months later can make lodging your return far more stressful than it needs to be. Keeping accurate records of both income and expenses throughout the year can save time, reduce mistakes and help support any deductions you claim. The ATO generally requires tax records to be kept for at least five years.

Key tax concepts for side hustlers:

From ABNs to apportionment, side hustle tax comes with a few terms that can seem unfamiliar. Here’s what they mean and why they matter.

The sharing economy: If you earn income through platforms such as Uber, Airbnb, Etsy or Airtasker, that income generally needs to be declared in your tax return, even if it’s only a side hustle.
Data Matching Programs: The ATO receives information from a range of sources, including banks and many digital platforms, and may compare it with what’s reported in your tax return. Keeping accurate records can help make tax time smoother.
Apportionment: If you use something for both work and personal purposes, such as your phone, car or camera, you may generally only claim the work-related portion of the expense.
Personal Services Income (PSI): If your side hustle income mainly comes from your personal skills or efforts, such as freelance writing or consulting, additional tax rules may apply and affect the deductions you can claim.
Australian Business Number (ABN): Depending on the nature and scale of your side hustle, you may need an ABN. In some cases, GST registration may also be required. A registered tax professional, such as H&R Block, can help you determine what applies to your circumstances. If your annual GST turnover exceeds the statutory threshold of $75,000 (or immediately for ride-sourcing), GST registration is mandatory.

Every side hustle is different, so while these principles provide a useful guide, the tax treatment of your income and deductions will depend on your individual circumstances.

Frequently Asked Questions

Do I need to declare side hustle income?

If you’re earning money from a side hustle, the answer is generally yes. Whether you’re driving for a rideshare service, selling products online, freelancing or picking up jobs through an app, that income will generally need to be declared in your tax return. If you’re unsure what needs to be included, a registered tax professional, such as H&R Block, can help you understand your obligations and prepare your tax return.

Is my side hustle a business or a hobby for tax purposes in Australia?

It’s one of the most common tax questions, and the answer isn’t always black and white. The ATO looks at things like whether you’re intending to make a profit, how regularly you’re earning income and whether you’re operating in a business-like way. If you’re not sure where your side hustle fits, it’s worth speaking with a registered tax professional.

What tax deductions can I claim for my side hustle?

It depends on the type of side hustle you have. If your activity is considered a business, you may be able to claim eligible expenses directly related to earning your income, such as platform fees, software subscriptions, insurance or work-related home office expenses. Just remember, if something is used for both work and personal purposes, you can generally only claim the work-related portion. H&R Block can help you identify the deductions you may be entitled to claim based on your circumstances.

Do influencers and content creators need to declare gifted products?

Potentially. Depending on the circumstances and the nature of the arrangement, products or benefits received in exchange for promotional activity may have tax implications. If you’re creating content as part of a business, it’s worth seeking professional advice to understand your obligations.

Can I claim part of my phone or internet bill?

If you use your phone or internet for your side hustle, you may be able to claim the work-related portion. You’ll need to keep records showing how you worked out the business use.

Not every side hustle requires an ABN. Whether you need one depends on whether your activity is considered an enterprise for tax purposes and the nature of the work you’re undertaking.

Whether you’re earning a little extra on the side or running a growing business, understanding your tax obligations can help you avoid costly mistakes and make the most of the deductions you’re entitled to. If you’re unsure how the rules apply to your situation, an experienced H&R Block tax professional can help you stay compliant, maximise your eligible deductions and lodge with confidence. Don’t tax yourself. Visit hrblock.com.au or call 132325.

General Financial Advice Disclaimer: This information is of a general nature only and should not be regarded as specific to any particular situation. Readers are encouraged to seek appropriate professional advice based on their personal circumstances.
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