Side hustles are everywhere in Australia. Whether it is driving for Uber or DoorDash, selling handmade products on Etsy, tutoring students online, doing freelance graphic design, or renting out your spare room on Airbnb — millions of Australians are earning extra money outside their main job.
And that is great. Extra income gives you breathing room, helps you pay down debt faster, or funds that holiday you have been dreaming about. But here is the thing that a lot of people do not realise until it is too late: the ATO wants a piece of that extra income, and they are getting better and better at tracking it down.
So let us walk through how tax works on side-hustle income in Australia, what you need to declare, what you can claim back, and how to avoid nasty surprises at tax time.
All Income Is Taxable — Even the Small Stuff
The first thing to understand is that Australia does not have a separate "side hustle" tax. All the money you earn gets added together and taxed at your marginal rate. So if you have a full-time job paying $70,000 and you make an extra $15,000 from your side hustle, your total taxable income is $85,000.
That means the side-hustle income is effectively taxed at your highest marginal rate. On $85,000, the top portion of your income falls in the 30% bracket plus 2% Medicare levy. So roughly 32 cents of every extra dollar you earn goes to the ATO.
There is no tax-free threshold for side income — that $18,200 tax-free threshold applies to your total income from all sources, and if you are already earning above it from your main job, every dollar of side income is taxable from the first cent. Our side hustle tax calculator can show you exactly how much tax you will owe on your extra earnings.
Do You Need an ABN?
If your side hustle involves providing services or selling products as a business (even a small, casual one), you should get an Australian Business Number (ABN). It is free, takes about ten minutes to apply for online, and you will need it to invoice clients, register for GST if required, and lodge a tax return that includes business income.
Strictly speaking, you do not need an ABN if your side activity is just a hobby — something you do for fun with no serious intention of making a profit. But the ATO looks at several factors to decide whether something is a hobby or a business: are you doing it regularly? Are you trying to make a profit? Do you have a business plan? Are you keeping records? If you answer yes to most of these, you probably need an ABN.
The practical benefit of having an ABN and operating as a sole trader is that you can claim deductions for your business expenses, which reduces the amount of tax you pay. Without an ABN, you are just declaring extra income with no deductions.
What Can You Claim as a Deduction?
This is where things get interesting. As a sole trader with a side hustle, you can claim a deduction for any expense that is directly related to earning your side-hustle income. Some common examples:
- Vehicle expenses: If you drive for a rideshare service or deliver food, you can claim fuel, maintenance, registration, and depreciation on your car (but only for the business-use portion). Our mileage logbook calculator can help you track and calculate vehicle expenses.
- Home office costs: If you run your side hustle from home — freelance writing, web design, tutoring — you can claim a portion of your electricity, internet, phone, and even rent or mortgage interest. Check out our home office calculator for an estimate.
- Equipment and tools: Cameras, laptops, software subscriptions, craft supplies — anything you buy specifically for your side hustle can be deducted. Items under $300 can be claimed in full immediately.
- Advertising and marketing: Website hosting, social media ads, business cards, market stall fees.
- Professional development: Courses, books, and training related to your side hustle.
The golden rule is that you can only claim the business-use portion. If you use your laptop 50% for your side hustle and 50% for personal use, you can only claim 50% of the cost. Keep good records — receipts, invoices, bank statements — because the ATO can and does ask for proof.
GST: Do You Need to Register?
You need to register for GST (Goods and Services Tax) if your side-hustle turnover reaches $75,000 or more in a 12-month period. If you are doing rideshare driving (Uber, Ola, DiDi, etc.), you must register for GST regardless of how much you earn — this is a special rule for that industry.
Once registered, you charge 10% GST on your sales, collect it from your customers, and then pay it to the ATO (minus any GST credits on your business purchases) when you lodge your Business Activity Statement (BAS). Our GST calculator can help you figure out the GST component of your sales and purchases, and our BAS estimator gives you a quick picture of what you might owe.
PAYG Instalments: Prepaying Your Tax
If your side-hustle income is significant, the ATO may ask you to start paying PAYG (Pay As You Go) instalments. These are quarterly prepayments of your expected tax bill, so you do not end up with a massive lump sum owing at the end of the year.
The ATO usually triggers PAYG instalments once you have had a tax bill of $1,000 or more from business or investment income. You can estimate your quarterly obligation using our PAYG instalments calculator.
Even if the ATO has not asked you to pay instalments, it is a really good idea to set aside money for tax as you go. A general rule of thumb is to put 30% of your side-hustle profit into a separate savings account for tax. That way, when the bill comes, you are ready.
Sole Trader vs Company — Does Structure Matter?
For most side hustles, operating as a sole trader is the simplest and cheapest option. You declare your business income and expenses on your personal tax return, and you pay tax at your individual marginal rate.
If your side hustle grows into something more substantial — say, consistently earning over $100,000 a year — it might be worth considering a company structure for asset protection and potential tax advantages. Our sole trader vs company calculator can help you compare the two structures side by side.
Common Mistakes to Avoid
- Not declaring income. The ATO receives data from banks, payment platforms (PayPal, Stripe, Square), and ride-share companies. They know about your side income. Failing to declare it can lead to penalties and interest.
- Claiming personal expenses as business deductions. That new phone is only deductible to the extent you use it for business. Be honest.
- Not keeping records. You need to keep receipts and records for five years. Use an app like the ATO's myDeductions to make it easy.
- Forgetting about super. If you are a sole trader, your employer is not paying super for you on your side-hustle income. Consider making voluntary contributions to keep your retirement savings on track.
The Bottom Line
Having a side hustle is one of the best ways to get ahead financially. But treat it like a business from day one — get an ABN, keep records, claim your deductions, and set aside money for tax. The ATO is not the enemy here; they just want their fair share. And if you plan properly, you will keep a lot more of what you earn. Use our sole trader tax calculator to see exactly what your side hustle will net you after tax.