Tax warning for millions of Aussies with a side hustle: ‘Looking closely’

Millions of Aussies are turning to side hustles to earn a bit of extra cash as the cost of living remains high. One tax expert has warned these Aussies that they will be firmly in the Australian Taxation Office’s (ATO) sights this tax time.

The ATO will be “looking closely” at side hustles this year and believes there are hundreds of thousands of dollars in underreported income when it comes to the side gigs. The tax office has expanded its data-matching powers to include share economy platforms such as Uber and AirTasker.

Tax Invest Accounting director and registered tax agent Belinda Raso told Yahoo Finance that Aussies could no longer hide their side hustle income.

RELATED

• Urgent tax warning as Aussies hit with ATO bills: ‘Hunting down debts’

• Insidious danger lurking behind common cashless solution: 'Avoid at all costs'

• Rare 50 cent coin worth $40: ‘Looks like a regular coin’

“If you’ve got a side hustle in the sharing economy that will be reported, if you receive payments through any bank or merchant facility that is going to be reported,” she said.

“If you do anything through Uber, all of that, literally there is nowhere to hide. Online platforms, so we’ve got eBay and PayPal, report to the ATO the volume of sales, so how many sales, and the dollar value as well.”

Raso said it was important to work out whether or not you were actually "in business" and had tax liabilities, or whether you were making income through a hobby and therefore don't have to declare it in your tax return.

Have you had to pick up a side hustle to cope with rising costs? Contact tamika.seeto@yahooinc.com

New research from Great Southern Bank found 67 per cent of homeowners were considering a side hustle, hobby business or second job to help cover their home loan repayments.

Reserve Bank of Australia (RBA) governor Michele Bullock also warned a small number of borrowers were facing a "cash flow shortfall", where their expenses were bigger than their income.

She said they could be forced to make "painful adjustments" to avoid falling behind on their repayments, including working extra hours, dipping into their savings or ultimately deciding to sell their homes.

Do I need to report my side hustle?

The ATO doesn’t have a set dollar amount to determine whether you are "in business". Instead, it uses three key indicators.

They are the intention to make a profit, carrying out your activities in a business-like manner and repetitive action. If you tick all three, Raso said you will be "in business" and will need to get an ABN and report your side hustle income to the ATO.

Raso gave the example of someone selling their secondhand clothes on Instagram who had started up a PayPal account. Despite the person intending to make cash, this wouldn't be considered as being "in business".

That's because they wouldn't have the repetitive action element - once they sell all their clothing, they wouldn't have anything left to sell.

“They are not looking for that, they are looking for those voluminous sales where people are selling say candles or say repurposing furniture where they can see the volume is going through,” Raso explained.

“If you’re selling your own personal items, there is no tax liability for that. But when people start doing this as a side hustle and they’ve got these repetitive actions, they’re constantly selling these products.”

For example, this could be the case if the person started outsourcing other clothing from suppliers to sell online.

ATO expands data-matching powers

The ATO has data-matching tools to identify taxpayers who are under-reporting their income. It gets information from a range of third-party sources, including employers, financial institutions, companies and government agencies.

It recently expanded its programs and now receives information from platforms like Uber and Airbnb, along with short-term accommodation platforms like Stayz and Airbnb.

Raso said many people weren’t aware of just how much the ATO could see.

“Most of these platforms are obligated under law to report to the ATO what’s going on," she said.

"People aren’t aware of that and they are not realising that when they sign up to PayPal, they sign up to eBay that literally gets matched straight with the ATO and it gets reported on your pre-fill."

In the last six months, the ATO has also added areas such as cryptocurrency transactions, novated leases and rental bonds.

Get the latest Yahoo Finance news - follow us on Facebook, LinkedIn and Instagram.