Many Australians earn extra income outside their regular job. You might sell products online, create content for social media or streaming platforms, do freelance work, provide tutoring, walk dogs or turn a favourite hobby into a source of income. What often starts as a side hustle can gradually become something more. The ATO recently updated its guidance for content creators, but the underlying issue applies much more broadly: at what point does a side hustle become a business?
The answer isn’t always obvious, and not every activity that generates income is a business. Depending on your circumstances, what you’re doing may be a hobby, an income-producing activity or a business, and the tax consequences can be different. In some cases, even if you’re not carrying on a business, amounts you receive may still need to be included in your tax return.
A hobby can evolve gradually. Perhaps you started making and selling crafts, posting videos for fun, streaming games, tutoring a student on weekends or selling a few items online. Over time, you might begin advertising your services, investing in equipment, building an audience or customer base, and regularly looking for ways to increase your earnings. Activities that once felt casual can start to take on a more commercial character.
There’s no single factor that determines whether you’re carrying on a business. Instead, a range of considerations come into play. Things such as whether you’re trying to make a profit, how regularly you carry on the activity and whether you’re operating in an organised, business-like way may all be relevant.
Content creators provide a good example. Income can come from advertising revenue, subscriptions, sponsorships, affiliate marketing, digital product sales and brand collaborations. In some situations, people may also receive products, services or other non-cash benefits in connection with their activities. As these activities become more established and income-producing, the tax implications can become more complex.
The same principles can apply to many side hustles. Someone who occasionally earns a small amount from a pastime may be in a very different position from someone who actively markets their services, keeps detailed records and is working to build a regular income stream.
As a side hustle grows, the practical obligations can change too. You may need to spend more time on record-keeping, report income in your tax return and put money aside to cover any tax that becomes payable. Depending on your circumstances, you might need an Australian business number (ABN) and, if your activity grows further, you may also need to consider other registrations such as GST.
It’s also worth remembering that Australian tax residents are generally taxed on their worldwide income. If you’re earning money through overseas-based platforms or receiving payments from overseas businesses, that doesn’t necessarily mean the income falls outside the Australian tax system.
If your side hustle’s grown over the past year, it’s a good time to review your situation and make sure you’re keeping appropriate records. Understanding whether your activity is a hobby, an income-producing activity or a business can help you avoid surprises later and make it easier to meet your tax obligations. If you’re unsure where your activities sit on the spectrum between hobby, side hustle and business, contact our office. We’ll help you understand the tax implications of your circumstances and what steps you may need to take next.