Australians earning extra cash from side hustles are being warned not to overlook their tax obligations, as the Australian Taxation Office (ATO) ramps up data-matching to catch undeclared income. With the cost of living driving many to take on gig economy work, freelancing, or online selling, tax experts say common mistakes could prove costly.
What Counts as Side Hustle Income?
According to the ATO, any income earned outside of your primary job—whether from driving for rideshare services, dog walking, selling handmade goods, or freelance consulting—must be declared. This includes earnings from platforms like Uber, Airtasker, Etsy, and even cash payments. The ATO uses data from banks, payment platforms, and sharing economy facilitators to cross-check reported income.
Mark Chapman, director of tax communications at H&R Block, says many people mistakenly believe small amounts don't need to be declared. "There is no threshold below which you don't have to declare income," he said. "If you earn $20 from mowing a lawn, that's assessable income."
Common Deductions You Can Claim
Side hustlers can claim deductions for expenses directly related to earning that income, such as vehicle expenses for delivery drivers, equipment and supplies, home office costs, and platform fees. However, the ATO warns against overclaiming. For example, claiming 100% of home internet costs if you only use it occasionally for side work is a red flag.
"You need to apportion expenses based on actual use," Chapman said. "Keep a logbook for vehicle use and receipts for all expenses."
Penalties for Getting It Wrong
Failing to declare side hustle income can result in penalties ranging from 25% to 75% of the tax shortfall, plus interest. The ATO's data-matching program can detect discrepancies between reported income and data from third parties. In the 2022-23 financial year, the ATO raised over $1.2 billion in penalties and interest from incorrect tax returns.
"The ATO is very good at finding undeclared income," Chapman said. "It's not worth the risk."
How to Stay on Top of Your Side Hustle Tax
To avoid mistakes, keep separate records for your side hustle, including all income and expenses. Use a dedicated bank account or app to track transactions. If you earn more than $75,000 from your side hustle, you may need to register for GST. For most casual earners, simply declaring the income in your annual tax return suffices.
The ATO also offers a free online tool, "myDeductions," in the ATO app to help record expenses throughout the year. Lodging on time and accurately can prevent unwanted attention.
With tax time approaching, experts urge side hustlers to get their affairs in order. "The golden rule is: if you earn it, declare it," Chapman said.
