With the way we work constantly changing due to COVID-19, some enterprising people have used the extra time to make money through the sharing economy or by establishing a side hustle. If that’s you, then doing your tax return may be a little different this year.
We teamed up with bookkeeper Jo Doye from Alluvia Financial who shares her top tips to make tax time that little bit easier. Jo had always had a passion for good food, good booze and supporting small businesses. So she decided to start a side hustle along with her day-to-day job. She teamed up with a group of like-minded locals and started Bendigo Beer.
1. Decide: hobby or job?
It’s important to establish if you’re working on a hobby or starting a business to determine how you will manage tax. Jo says that when people first start out, they don’t think about setting up their side hustle as a business, and therefore don’t realise what’s what on the compliance side, or the additional liabilities, risk, and insurance that’s needed. The ATO outlines the characteristics of a business versus a hobby here.
“Generally if you’re out to make a profit regularly, then that’s a sign you’re operating a business. Once you’re making over $75,000, you have to register for GST. But the ATO has moved away from it being about the physical money, it’s more about what you’re doing, rather than how much you’re making.”
2. Register for ABN early in your journey
If you’re doing business regularly, it can be worth getting an ABN as soon as possible. Jo says this can save a lot of administration work down the line, especially come tax time.
“You’re better off having an ABN to avoid having to do a statement by a supplier every time you send out an invoice. It minimises that administration burden. You can have an ABN without needing to register for GST until you reach the GST income threshold (currently $75,000 a year.).”
3. Been earning money through the sharing economy? Keep records for expenses and tax
A lot of people have been using the sharing economy as a side hustle to earn extra income. But some sharing platforms like Uber and Airbnb require users to be registered for GST. Jo says while it might seem like an easy option it’s important to be across all the implications before you start.
“Property owners leasing their rooms, units and houses on popular home-sharing sites like Airbnb must keep records of income and expenses just as for any rental property. It’s crucial to keep precise records of which rooms and areas of the property are rented in order to correctly claim expenses.”
If you’re using the sharing economy just for a short-term gig, make sure you let the ATO know as soon as possible.
“If you quit your business while being registered for an ABN and GST, you must contact the ATO to deregister, so they don’t chase you for not lodging.” says Jo.
Keep on top of your bookwork from the very beginning
Keep track of what’s coming in and what’s going out with cloud accounting software as soon as you start. Jo says there are packages for people who only need the basic features.
“On a basic plan you can link up your bank account and manage everything from the get go. It’s just so much easier when the business grows, or if you haven’t saved copies of anything. It can be a nightmare if you’ve used personal bank accounts and then have to split out your business expenses.
She says having all your data in one place can help make decisions simple further down the line.
Feeling overwhelmed? Don’t be afraid to ask for help
As a side hustler, it can be tempting to try and manage every element of the business yourself, including the financials. However, going it alone makes it easy to make unintentional mistakes at tax time, making you liable for errors. Jo says there are advisors out there ready to offer a hand.
“We often find at the start, with sole traders, they only require a little bit of training, and check ins are enough for them to be able to manage, so they can keep on top of things.”
With the help of an advisor to ease the burden around tax time, you can avoid your side hustle becoming a chore.
“It can be really easy to burn out when you start to take on too much. You don’t want it to be eating into your life and family and things that give you enjoyment too much. Otherwise you risk it becoming the day-to-day mundane of the job that you may be trying to escape.”
For more on how to prepare for EOFY, we have a dedicated EOFY and tax resource hub. It includes sections dedicated to accountants and bookkeepers, and an area just for small businesses. You’ll find the latest resources including webinars, checklists and more useful information.