If you or someone you know began a side business (or “side hustle”) during the last financial year, you would have to meet the tax obligations that come with that business, along with the tax obligations of your primary business.
All income earned through a side business is taxable income. That means every sale you make will count towards your taxable turnover (the total business income from your sales) and must be declared on your income tax return. Additionally, suppose your turnover exceeds or looks like it will exceed $75,000. In that case, you must register for GST and incur the 10% tax added to your taxable sales, payable to the ATO every quarter.
If you have to spend money on purchases or expenses related to the side business, that spending can be deducted from your profits. You only need to pay tax on the difference between your income and deductions. Here are a few things to remember when claiming a deduction for your business.
- The expense you are claiming must have been incurred by the business.
- The expense must relate to the business and can’t be something like your weekly groceries (domestic or private in nature expenses are generally not eligible for claiming).
- If an expense has been incurred that is partly private/domestic and partly for business, that expense will need to be appropriately divided. This is especially useful if you run your business from home and claim home office costs.
- Always ensure that your records are being kept and that there is evidence that the business spent the money. An invoice or a receipt is sufficient evidence in this case, but a bank or credit card statement may also be used.
Other deductible expenses can happen during the initial startup and structuring of the business. These deductions can include costs incurred when seeking professional advice on structuring the business, researching the business’s viability or when developing a business plan.
A few items you might be eligible to claim for your side business include:
- If the business is being run from home, the business portions of bills like utility, phone or internet can be claimed.
- Skilling up for the business or reskilling may be tax-deductible for the cost of courses, training, seminars or conferences (as long as it links to business income).
- Any prep work that occurred during the business startup before the business’ official start can be claimed by the business.
Always ensure that you claim all expenses that could apply to your business.
Good record-keeping will help track all income and potential deductions that come through via the side business, and employing a bookkeeper could ensure that this happens correctly.
Remember that accountants are always here to help you during tax return time, so start a conversation today about how we could assist you.