One of the most common questions new side-hustle owners ask is: Do I need an Australian Business Number (ABN), and when do I need to register for Goods and Services Tax (GST)?
Getting these details right from the beginning can help you avoid unnecessary complications and manage your finances more confidently.
Let's break down what you need to know.
1. Is Your Side Hustle a Hobby or a Business?
Before applying for an ABN, you need to understand whether your activity is considered a hobby or a business.
Not every activity that earns money automatically qualifies as a business. The Australian Taxation Office (ATO) considers several factors when determining whether someone is carrying on a business.
Your activity may be considered a business if:
- You intend to make a profit.
- You regularly sell products or provide services.
- You actively look for customers or clients.
- You operate in a planned and organised way.
- You maintain business records and track income and expenses.
- Your activities are similar to those of other businesses in your industry.
For example, occasionally selling handmade items for enjoyment may be considered a hobby. However, regularly producing products, advertising them online and selling them to customers with the intention of making a profit may indicate that you're operating a business.
The distinction matters because businesses generally have different tax and record-keeping responsibilities from hobbies.
2. Do You Need an ABN for Your Side Hustle?
An Australian Business Number (ABN) is an 11-digit number that identifies your business when dealing with the government, customers and other businesses.
If you're genuinely carrying on a business or starting an enterprise, you may be entitled to apply for an ABN.
An ABN can help you:
- Issue professional invoices.
- Establish your business identity.
- Deal with suppliers and customers.
- Register for GST when required.
- Manage business tax registrations.
- Avoid certain tax withholding arrangements when providing services to other businesses.
For example, imagine you're working full-time as a graphic designer but also offering freelance design services to clients. If your freelance activity operates as a business, obtaining an ABN can help you manage client payments and business transactions.
Is an ABN compulsory for everyone?
No. Not everyone earning additional income needs an ABN. However, most people carrying on a business will find it useful, and eligibility depends on whether the activity qualifies as an enterprise.
Applying for an ABN through the Australian Government's official registration service is free. Be cautious of websites charging unnecessary fees to complete the application.
3. When Do You Need to Register for GST?
Goods and Services Tax (GST) is a 10% tax applied to most goods and services sold or consumed in Australia.
For most businesses, GST registration becomes compulsory when their GST turnover reaches or is expected to reach $75,000 or more per year.
Importantly, GST turnover is based on business income, not profit.
This means you should consider your sales and business income rather than simply calculating how much money remains after expenses.
For example:
- Annual business turnover: $82,000
- Business expenses: $25,000
- Business profit: $57,000
Although the profit is below $75,000, the business turnover exceeds the GST registration threshold.
You may therefore be required to register for GST.
Some businesses have different requirements. For example, taxi and ride-sourcing drivers generally need to register for GST regardless of their turnover. Certain other activities, including businesses claiming fuel tax credits, can also trigger registration requirements.
4. What Happens If Your Side Hustle Earns Less Than $75,000?
If your side hustle has an annual GST turnover below $75,000, you generally don't have to register for GST unless a specific exception applies.
However, you can choose to register voluntarily if you're eligible.
Voluntary GST registration may be worth considering if:
- You regularly purchase equipment or supplies for your business.
- You work with GST-registered business customers.
- You want to claim eligible GST credits on business purchases.
- You expect your business to grow quickly.
However, GST registration also creates additional responsibilities.
You generally need to include GST in the price of taxable sales, issue appropriate tax invoices, keep supporting records and lodge Business Activity Statements (BAS).
It's important to consider whether voluntary registration makes financial sense for your particular business.
5. What If You Don't Register for GST When Required?
Failing to register for GST when your business is required to do so can create financial and administrative problems.
If your GST turnover reaches the registration threshold, you generally have 21 days to register after becoming required to do so.
Delays may result in GST liabilities for sales made from the date you should have been registered. This can be particularly difficult if you've already charged customers prices without accounting for GST.
For example, if you provide services to customers at a fixed price and later discover that GST should have been included, you may have to account for GST from the amount you received.
That could reduce your actual business earnings.
Monitoring your turnover regularly can help you identify when registration may become necessary.
6. Do You Need to Declare Side-Hustle Income?
Yes. If your side hustle generates business income, you generally need to declare that income in your annual tax return.
Having a full-time job doesn't remove your responsibility to report additional taxable income.
For example, if you earn $75,000 from your regular employment and another $15,000 from freelance work, your additional business income generally needs to be included in your tax return.
You may also be eligible to claim legitimate business expenses, provided they meet the relevant tax deduction requirements.
Depending on your activity, these could include:
- Business-related software subscriptions.
- Advertising and marketing expenses.
- Equipment used for business purposes.
- Website hosting and domain costs.
- Eligible business travel expenses.
- Professional accounting fees.
Keep invoices, receipts, bank statements and other supporting documents. Remember that private expenses cannot simply be claimed as business deductions.
7. Common Mistakes Side-Hustle Owners Should Avoid
Many people start their side businesses without understanding their tax responsibilities. Some common mistakes include:
Not checking ABN eligibility: Assuming every money-making activity automatically qualifies for an ABN can lead to incorrect registrations.
Ignoring GST turnover: Waiting until the end of the financial year to check your turnover can mean missing your GST registration obligations.
Mixing personal and business expenses: Using one bank account for everything can make bookkeeping and tax reporting more complicated.
Not keeping receipts: Missing records can make it difficult to support deductions and prepare accurate tax returns.
Forgetting to declare additional income: Side-hustle earnings don't automatically become tax-free simply because they're generated outside regular employment.
Avoiding these mistakes from the beginning can make managing your side hustle much easier.
8. How Vanguard Accounting Can Help
Starting a side hustle should be about building opportunities, not worrying about confusing tax requirements.
At Vanguard Accounting, we help individuals, freelancers, contractors and small business owners understand their accounting and tax responsibilities.
Our services can help you with:
- ABN registration guidance.
- GST registration and compliance.
- BAS preparation and lodgement.
- Bookkeeping and financial record management.
- Business tax returns.
- Tax planning and accounting support.
Whether you're just starting out or already earning regular income from your side hustle, having the right accounting guidance can help you make informed decisions.
Final Thoughts: Get Your Side Hustle Started the Right Way
A side hustle can become a valuable source of income and potentially grow into a full-time business. But understanding your ABN, GST and income tax responsibilities is an important part of building it successfully.
Remember, an ABN and GST registration are two different things. You may be entitled to an ABN without needing to register for GST immediately.
Monitor your turnover, maintain accurate records and understand your obligations as your business grows.
Need help understanding your side-hustle tax obligations? Contact Vanguard Accounting and get the right guidance before small mistakes become bigger problems.
Website: https://vanguardaccounting.au/
Frequently Asked Questions (FAQs)
1. Do I need an ABN for a small side hustle?
If your side hustle qualifies as a business or enterprise, you may be entitled to an ABN. A hobby generally does not qualify. Your circumstances and the nature of your activity matter.
2. Can I have a full-time job and an ABN?
Yes. You can generally operate a separate business while working as an employee. You must still meet the relevant tax and reporting obligations.
3. Do I need GST registration if I earn less than $75,000?
Generally, no. GST registration is optional below the threshold unless a special rule applies, such as the requirements for taxi and ride-sourcing services.
4. Is an ABN free in Australia?
Yes. Applying directly through the Australian Government's Australian Business Register is free.
5. Do I have to declare side-hustle income in my tax return?
Business income from your side hustle generally needs to be declared in your annual tax return, even if you also earn a salary from full-time employment.
Disclaimer: This article provides general information about Australian tax and business registration requirements. Individual circumstances can differ, and tax rules may change. Seek advice from a qualified tax professional or registered tax agent before making decisions about your business obligations.
