Side-hustle tax in Australia: ABN or hobby, and what the ATO expects

From Uber to Etsy, extra income attracts tax. Learn the difference between a hobby and a business, when to get an ABN, and how to stay on the right side of the ATO.

By ECTD Editorial · Published 2026-06-11 · Updated 2026-06-11

Thousands of Australians are boosting their weekly income through side hustles, yet many remain unaware of their tax obligations. Whether you are driving for Uber, selling handmade jewellery on Etsy, or freelancing as a graphic designer, the Australian Taxation Office (ATO) treats this money differently from a salary. Failing to understand the distinction between a hobby and a business, or ignoring the requirement for an Australian Business Number (ABN), can lead to unexpected tax debts and penalties.

Hobby versus business: Why the distinction matters

The first step in managing your side hustle tax is determining whether your activity is a hobby or a business. This distinction is not a choice you make based on preference; it is determined by facts and circumstances. The ATO looks at several indicators to decide if you are running a business. If you are operating a business, you must declare your income, but you can also claim deductions for expenses. If it is a hobby, you generally do not declare the income, but you cannot claim any losses.

Key indicators that you are running a business include an intention to make a profit, repetition and regularity of activity, the activity is organised in a business-like manner (keeping records, having a business plan), and the activity is of a reasonable size given the industry. For example, if you occasionally sell a used bicycle on Facebook Marketplace, that is likely a hobby. However, if you buy bicycles to restore and sell them every weekend with the aim of making a profit, the ATO views this as a business.

The profit motive test: Even if your side hustle loses money in the first year, you can still be considered a business if your intention is to be profitable. The ATO looks at the whole picture, not just the current bank balance.

When you need an Australian Business Number (ABN)

If you have determined that your side hustle is indeed a business, you generally need an ABN. An ABN is a unique 11-digit number that identifies your business to the government and the community. It is free to apply for online through the Australian Business Register. While not every tiny enterprise strictly requires one, not having an ABN when you deal with other businesses can result in financial pain.

The most immediate consequence of not quoting an ABN is the no ABN withholding rule. If another business pays you for goods or services worth more than $75 (excluding GST) and you do not provide your ABN, they are legally required to withhold 47% of that payment and send it to the ATO. This is a significant amount to lose. For instance, if you complete a freelance web design job for $1,000 and do not provide an ABN, the client will pay you only $530, withholding $470 for the tax office.

You are carrying on an enterprise in Australia.
You need an ABN to avoid having tax withheld from payments made to you.
You wish to claim Goods and Services Tax (GST) credits.
You are registering for a business name.

Declaring your income to the ATO

Once you have an ABN and are operating as a business, you must declare all income earned in your annual tax return. This is not optional. The ATO requires you to report your gross income (the total money coming in) minus your allowable business expenses to arrive at your net taxable profit. This net profit is then added to any other income you earn, such as wages from your main job, and taxed at your marginal rate.

For the 2025-26 financial year, Australian residents face the following marginal tax rates: 0% on the first $18,200, 16% on income between $18,201 and $45,000, 30% on income between $45,001 and $135,000, 37% on income between $135,001 and $190,000, and 45% on income above $190,001. If your main job pays you $80,000 and your side hustle generates a net profit of $20,000, your total taxable income becomes $100,000. You will pay tax on that $100,000 at the relevant rates, which might push you into a higher tax bracket than your main job alone.

Where to report the income

You report business income in the Supplementary section of your tax return. If you are a sole trader, you generally use the Business items schedule. You will need to record your gross sales and list your deductions. It is vital to keep accurate records throughout the year so you can complete this section accurately. Do not assume that because you did not receive a Payment Summary from an employer, the income does not need to be declared.

Claiming deductions for your side hustle

The silver lining of running a business is the ability to claim deductions for expenses incurred in earning your income. A deduction is valid if the expense was necessarily incurred in carrying on your business and it is not private or domestic in nature. However, you must be careful with apportionment. If you use an asset for both business and personal reasons, you can only claim the business portion.

Consider a rideshare driver who uses their personal vehicle. They can claim fuel, registration, insurance, and depreciation, but only for the time the car was used for driving passengers. If the car is used 70% of the time for Uber and 30% for personal grocery trips, only 70% of those running costs are deductible. Similarly, a content creator working from a home office can claim a portion of their electricity and internet bills based on the floor area of the office and the hours worked.

Cost of goods sold: Materials to make products, or wholesale costs for resale.
Advertising: Facebook ads, Google Ads, or business cards.
Platform fees: Commissions charged by Etsy, Uber, Airbnb, or Fiverr.
Software and tools: Subscriptions to Adobe Creative Cloud, accounting software, or Zoom.
Insurance: Public liability insurance relevant to your work.

Keep receipts for everything: The ATO requires evidence for every deduction you claim. A bank statement showing a purchase is often not enough; you need the actual tax invoice showing what was bought, the supplier, the date, and the amount.

The $75,000 GST registration threshold

Goods and Services Tax (GST) is a 10% tax on most goods, services, and other items sold in Australia. If your business has a turnover (gross income, not profit) of $75,000 or more per year, you must register for GST. Once registered, you must add 10% to your sales price and send this amount to the ATO, usually via quarterly Business Activity Statements (BAS).

There is a critical exception for rideshare and taxi travel services. If you drive for Uber, DiDi, or Ola, you must register for GST from the very first dollar you earn, regardless of your turnover. This rule was implemented to level the playing field between ride-sourcing drivers and traditional taxi drivers. If you are selling goods on Etsy or consulting as a freelancer, you only need to worry about GST once your total revenue exceeds $75,000.

How GST affects your pricing

If you hit the $75,000 threshold, you need to adjust your pricing strategy. If you previously sold a product for $100, you must now charge $110. You keep the $100 and pass $10 to the ATO. Alternatively, you can absorb the cost, but this reduces your profit margin. For example, if you continue to charge $100, that price now includes GST, meaning you actually only receive $90.91 before tax, and you owe $9.09 to the ATO.

PAYG instalments: The surprise tax bill

When you start a side hustle, the ATO does not automatically withhold tax from your income like an employer does. This can lead to a nasty surprise at tax time. If your tax bill from your business income exceeds a certain amount, the ATO will place you into the Pay As You Go (PAYG) instalment system. This means you will be required to pay tax in quarterly increments throughout the year, rather than paying a lump sum at the end of the year.

The ATO calculates your instalments based on the tax you owed in your most recent return. For example, if you earned a significant profit from your side hustle in the 2024-25 year and owed $4,000 extra tax, the ATO might send you a notice in 2025-26 asking you to pay $1,000 every quarter. While this feels like an extra burden, it is actually helpful as it prevents you from spending money that should be set aside for tax.

Varying your instalments: If your income fluctuates wildly, you can vary your PAYG instalments via your myGov account. However, be careful; if you vary your instalments down and still end up owing tax, the ATO may charge you interest on the shortfall.

ATO data matching: They know what you earn

One of the biggest myths is that the ATO will not know about small side hustle earnings. The reality is that the ATO has extensive data-matching powers. They collect data from financial institutions, ride-sharing providers, accommodation platforms, and online selling sites. This data is matched against tax returns to identify unreported income.

The ATO specifically obtains data from electronic distribution platforms such as Airbnb, Stayz, Uber, Ola, DiDi, and even freelance sites like Fiverr and Upwork. They also receive reports from banks regarding account deposits that exceed certain thresholds. If you receive $10,000 in payments to your bank account from Uber but declare zero business income, the ATO's systems will flag the discrepancy. This can trigger an audit, leading to penalties on top of the unpaid tax.

Ride-sourcing data: Total payments made to drivers, number of trips, and driver details.
Short-term accommodation: Gross income, number of nights booked, and property details.
Online sales: Transaction value and seller identification for high-volume sellers on platforms like eBay and Amazon.

Record-keeping essentials

Good record-keeping is your best defence against an audit and makes tax time significantly less stressful. The law requires you to keep records for five years after you lodge your tax return. These records must be in English and allow the ATO to verify your claims. You do not need to keep physical paper receipts; digital copies are acceptable, provided they are legible and stored securely.

You should keep records of income received (invoices, bank statements, PayPal/Stripe reports) and expenses paid (receipts, invoices). You should also keep a logbook if you are claiming motor vehicle expenses, and a diary if you are claiming home office expenses. Using accounting software like Xero, MYOB, or even a simple Excel spreadsheet can help organise this data. Many sole traders find a dedicated business bank account helps separate personal and business transactions, making record-keeping much clearer.

What to do this week

If you are currently running a side hustle or planning to start one, take action now to ensure you are compliant. First, assess whether your activity is a hobby or a business using the ATO's online tools. If it is a business, apply for an ABN immediately to avoid the 47% withholding tax on your invoices. Next, open a separate bank account for all business transactions to simplify your bookkeeping.

Finally, set aside a percentage of every payment you receive—around 20% to 30%—into a high-interest savings account. This ensures you have the funds available to pay your tax bill or PAYG instalments when they fall due. If you are unsure about any aspect of your tax obligations, it is worth consulting a registered tax agent. They can provide advice specific to your situation and help you maximise your legitimate deductions while staying on the right side of the law.

General advice warning: This article provides general information only and does not constitute personal financial or tax advice. Tax laws are subject to change, and you should consider your personal circumstances or consult a qualified professional before acting.

General information only — not personal financial, tax, legal or medical advice. Consider your own situation and consult a licensed professional before acting. Figures are current as at the date shown above.