How much tax do I need to pay for a side hustle in Australia?
I am a full-time employee and want to start a small business on the side. If I go ahead and register a small business as a sole trader with an ABN, I understand that I need to update my details and link my tax file number annual wages etc. when registering the business.
For example, if I am to earn $12,000.00 net profit per annum after all my expenses, how much (%) tax will I have to pay?
Does anyone have any tips on how to maximise a tax return on your side hustle business?
In Australia, the money you earn from your side hustle or side business is considered taxable income. As Lee has explained in detail, the taxable income for your side business is contingent on how much you earn overall from your annual wages.
To help you keep on top of tax for your side hustle business you can follow these best practices:
Always declare your income on your income tax return. This includes sales that were made in cash. Another key thing to note is that if your annual turnover exceeds or is likely to exceed $75,000, you will need to register for GST.
Claim any relevant tax deductions to reduce your taxable income. There is a long list of tax deductions you can claim, including expenses for businesses that operate from home. So make sure sure you keep all receipts and records!
Plan ahead and set money aside to avoid unwanted debts to the ATO come tax return time.
And don’t forget, if you’re confused about your side hustle tax obligations it’s always a good idea to book in some time with an accountant who will be able to clear up any issues.
The amount of tax you will pay on the income from your sole trader business will depend on how much you earn from your annual wages.
For a sole trader, your business income will add to your wages income and you will pay tax at your marginal tax rate.
For 2017-2018 theindividual marginal tax rates are:
$0-18,200 Nil Tax
$18,201 - $37,000 Tax - 19c for every dollar over $18,200
$37,001 - $87,000 Tax - $3,572 plus 32.5c for every dollar over $37,000
$87,001 - $180,000 Tax - $19,822 plus 37c for every dollar over $87,000
$180,001 and over Tax - $54,232 plus 45c for every dollar over $180,000
These do not include the 2% medicare levy. You will need to pay an additional 2% on your total taxable income for the medicare levy.
An example would be if you earn $50,000 from wages and $12,000 from your business, the additional tax on your business income would be $3,900 plus $240 medicare levy. This is because you fall in the 32.5c marginal tax bracket.
As a salary and wage earner, your employer should be withholding the appropriate amount of tax and medicare levy from your wage to cover the tax on the $50,000.
Because the income of a side business is taxed at marginal rates there is value in considering a little tax planning.
If your spouse is not working then maybe you should consider either operating the business activity in their name or perhaps using a trust for the business so that the profits can be diverted away from the person with the highest income.
Would be great to get your thoughts on this @Ian Harris @Mark Chapman @Leigh Cummings @Amanda Hoffmann - Certified Bookkeeper, BAS Agent @Kirsty Fox @Hitesh Mohanlal @Bruce Patten @Gillian Nathan
