Why side hustles are a tax minefield
TAX time is getting trickier for Australians amid a surge in the number of people working part time and starting side-hustle small businesses.
Any mistakes in your tax return - accidental or deliberate - are more likely to be spotted by the Australian Taxation Office's data matching technology.
Superannuation also becomes an issue for part-time workers and small business owners, who often ignore their long-term savings.
Australian Bureau of Statistics and Reserve Bank of Australia data shows that in the 1960s less than one in 10 people worked part time.
Today, it's one in three - including almost one in two women and young workers.
ATO assistant commissioner Peter Holt said the ATO's "sophisticated data matching" technology would check more than 650 million pieces of data this tax time.
"This allows the ATO to identify and analyse people who have earned income through sharing economy platforms such as ride sharing and short-stay online rental platforms."
WHAT YOU MUST DECLARE
Mr Holt said deliberate attempts to omit income could attract penalties including 75 per cent of the shortfall amount.
"If you are engaged in the sharing economy or provide other types of services, the income you earn is taxable and needs to be declared in your tax return, even if you are not in business," he said.
"You can claim deductions for expenses directly related to the services you provide.
"However, you must have records to prove you incurred the expense and weren't reimbursed for it, and if the expenses relate to both personal and income-producing use you can't claim a deduction for the personal use portion.
"For example, you can claim a deduction for a laptop if you bought it for your business - just claim for the proportion of business use, not private use, and keep your receipt."
TRAPS FOR BUSINESS OWNERS
Mr Holt said the top three problems the ATO saw in small business owners' tax returns were:
• Failing to report all of their income.
• Not having the necessary records to prove business expenses claims.
• Claiming private expenses as business expenses.
The ATO has information on ato.gov.au about the sharing economy and tax, and also information about other side gigs and whether they may be seen as a business or hobby. Search "ato.gov.au are you in business?" for help or speak with an accountant or tax agent.
CPA Australia head of external affairs Paul Drum said the ATO had received extra funding through the Black Economy Taskforce to crack down on compliance and increase audits.
"Taxpayers are increasingly being contacted regarding their income and expense claims, including where there are discrepancies in returns when compared against pre-fill data from third parties, such as banks or business benchmarks," he said.
Mr Drum said it was important to seek professional tax advice, especially around complex issues.
"This includes structures, capital gains tax, personal services income, trust declarations and distributions, and private company loans," he said.
Xero head of industry Matthew Prouse said traps for business owners included trying to do it all alone, which could result in unintentional mistakes.
"Look at lightening the load by bringing an expert on board such as a registered accountant or bookkeeper who can easily and accurately lodge your tax return," he said.
People should also avoid outdated tools such as recording accounts on paper or in Excel, which could cause errors and waste time, Mr Prouse said.
Poor record-keeping and failing to understand new regulations are other potential traps.
"It's crucial to stay on top of regulation in your industry sector," Mr Prouse said.
"This includes tax legislation such as Single Tax Payroll or tax deduction rules and limitations. The best way to do this is to speak with a qualified, registered tax agent or the ATO."
BE SUPER SMART
Tania Tonkin, a chartered accountant and financial adviser at dmca advisory, said research had found that 7 per cent of Australians used sharing economy sites to earn income, and the most popular were Airtasker, Uber and Freelancer.
About one-third used multiple online platforms and 11 per cent were registered with four or more sites, she said.
"Young people and others working in on-demand roles might think it's great because they can be very flexible, but they are also vulnerable because they don't get super or other entitlements," she said.
"It's vital that these workers are disciplined enough to put some money aside each month to cover what they are not getting from an employer."
Ms Tonkin said employees usually were paid 9.5 per cent compulsory super by their bosses.
"But if you're over 18 and earn less than $450 a month in any one job there is no obligation for an employer to pay it," she said.
"Some people might be working as many as three jobs but will get no super at all. It's important to think about these issues even if you're young and retirement still seems a long way off.
"It can make a big difference down the track."
TIPS FOR SHARING ECONOMY EARNERS
• Get the facts and use the ATO's online resource centre.
• If you provide ride sharing services, you must register online for GST and an Australian Business Number.
• Keep records of all expenses in earning your sharing economy income. These records might include petrol and car wash receipts, or rental property platform commissions and cleaning costs.
• Deregister if you stop working in the sharing economy, or you may be hit by a non-lodgement fine.