ATO targets pandemic jobs on the side

ATO Targets Pandemic Jobs On The Side

Have you developed a side hustle to generate extra income during the lockdown? Watch out for the tax office.

Undeclared income from second jobs started during COVID-19 lockdowns is the target of an investigation being launched by the Australian Taxation Office.

“Side hustles” have proliferated as the pandemic and working from home increased opportunities (or the need) to earn additional income.

These typically involve generating income outside the “nine-to-five” job – often using skills, knowledge or equipment from the full-time job to generate a niche market for in-demand goods and services.

Jobs range from sophisticated services using the sharing or “gig” economy through to freelancing, income from local markets or subscription-based social media platforms.

Tim Loh, ATO assistant commissioner, says: “We know lots of people have picked up a side hustle during the pandemic. This has included a wide range of activities and it doesn’t matter whether you are an employee, independent contractor, carrying on a business or none of these. When you receive payment for your services, the income needs to be reported – even if it’s a one-off.”

Ways to check extra income

Loh says the ATO receives information from online marketplaces, financial institutions, short-term rental websites and ride-source apps (where someone makes a driver or car available for public hire).

“The data we receive is growing, which means the places to hide are shrinking,” he says.

Mark Chapman, tax director at H&R Block, says: “The ‘side hustle’ is a big thing at the moment, but starting one comes with tax obligations that have to be met.”
How to avoid trouble

An Australian Business Number is needed as well as a record-keeping system to monitor income and expenses.

There will also need to be a plan for paying tax on business income when lodging activity statements and annual tax returns.

“If your turnover exceeds $75,000 (or even if it’s looking like it might exceed $75,000 in the near future), you’ll need to register for goods and services tax (GST),” Chapman says.

Ten per cent GST is added to taxable sales and needs to be paid every quarter.

“Keeping track of your income is essential so you need to keep good records. There are lots of accounting software packages that can help, but consider a professional bookkeeper if you are not a good numbers person,” Chapman says.

Loh says it’s wiser not to use what other people claim as the basis for your deductions. “Every job is different, and what is required to earn an income for one occupation may not qualify in another,” he says.

Claim expenses

Every dollar spent on purchases and expenses relating to the business can be deducted from profits. Tax is paid on the difference between income and deductions.

That can include the cost of buying stock, office heating, marketing or travelling to meet customers, Chapman says.

Key issues are:

  • Expenses must be incurred by the business;
  • Partly business and partly domestic expenses need to be apportioned;
  • A proportion of mortgage interest or rent can be claimed for a dedicated “business space”. However, if this is a space in the home, claiming will mean the entire home will not be eligible for the capital gains tax exemption normally available to the main residence once it’s sold.

Immediate write-offs

Capital equipment needed for the business – such as cars, computer equipment, office furniture or plant to produce a product – is eligible for an immediate deduction for the full cost.

The special incentive, which replaces writing off the cost over several years, is set to end on June 30, 2023.

Capital equipment needed for the business is eligible for an immediate deduction for the full cost. Simon Schluter

Expenses incurred when assessing the feasibility of a business can also be deducted, even if the analysis shows the idea is a dud.

“Deductible costs can include professional advice on structuring, researching the viability of the business and developing a business plan,” Chapman says.

Super payments

“Don’t forget superannuation,” he adds. “Once your business is up and running, it makes sense to put your money away for your retirement as soon as your cash flow allows.”

This is particularly an issue for about 75 per cent of self-employed women who have no superannuation savings, or savings of less than $40,000, according to analysis by the Association of Superannuation Funds of Australia.

Financial Review Newsfeed - Duncan Hughes Oct 21st 2021

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