People are becoming more and more interested in beginning a side business; separate from their usual means of making an income. You may simply desire additional income, or maybe you want your side gig to eventually become your career. In fact, a recent Manpower Group study determined that two out of five Australians under the age of 34 would rather work several part-time jobs, as opposed to taking a single job with traditional working hours. Particularly with these changing career desires and needs, when it comes to your taxes, it’s vitally important to understand the difference between a side business and a hobby.
Side-Hobby or Side-Business?
As explained by the Australian Taxation Office, some signs that your hobby may now be a business include working with the intention of generating a profit, repeatedly offering your trade, treating your trade in a business-like way, such as through the registration of a business name and Australian Business Number (ABN) or by opening a separate bank account. As a hobbyist will not do or have these things, there is no additional tax responsibility from their services. A hobbyist will simply complete a statement by a supplier form if an ABN is requested by a business.
However, if you have come to the conclusion that you are, in fact, operating a side business, you will have different tax reporting obligations.
As the owner of the business, the ABN will be attached to your own tax file number, however, your employment income and side business income will be considered two separate entities. While your employer will issue you a PAYG payment summary, it will be your responsibility to maintain appropriate logs of the income received from your side business.
It is also a requirement that any business exceeding $75,000 in annual turnover (equating to your gross income minus GST) register for general sales tax (GST), as well as all taxi or limousine drivers.
Registering for GST
If you are prepared for your business to reach this turnover limit within its first year, you should register for GST at the time you register your business. Otherwise, if your turnover reaches this point throughout the course of business operations, you must register the business for GST within 21 days of reaching the threshold. If you do not keep track of this, and remember to register, you may end up paying penalties and interest, as well as pay general sales tax on each sale you have made since the date you reached the limit.
There are many other nuances when it comes to taxes for side businesses, and it’s easy to become overwhelmed with all of the information and requirements. If 2018 is the year you’ve chosen to begin a side business, or if you’ve already had one for awhile, TCA Darwin offers all aspects of business operation and advice, including proper registration and tax preparation. We can assist you with your business start-up checklist and accounting practices. Contact us today, and let us guide you further into this new year.