For years, Australians have used the term "side hustle" to describe everything from selling handmade products online and freelancing after hours to driving for ride-share services on weekends. The phrase makes these activities sound casual, flexible and relatively low-risk.
But from the Australian Taxation Office's perspective, there is no such thing as a side hustle.
As cost-of-living pressures continue to push more Australians to seek additional income streams, it's important to understand that the ATO doesn't assess activities based on what you call them. Instead, it looks at what you're actually doing. And in many cases, what people describe as a side hustle may legally be considered a business.
That distinction matters because once an activity becomes a business, a range of tax obligations can apply.
When Does a Hobby Become a Business?
Many people begin earning extra income with no intention of starting a business. A few online sales, occasional consulting work, weekend markets or some freelance projects can initially feel more like a hobby than a commercial venture.
However, over time, those activities often grow.
The occasional sale becomes a steady stream of orders. A weekend project develops into regular client work. What started as a passion project begins generating meaningful income.
This is where many people get caught out.
One of the most common questions accountants hear is whether income from a side activity needs to be declared. The answer depends on whether the activity is considered a hobby or a business.
The ATO considers several factors when making that determination, including:
Whether there is an intention to make a profit
Whether the activity is conducted in a business-like manner
Whether goods or services are sold regularly
Whether advertising or marketing is involved
Whether records and systems are maintained
The scale and repetition of the activity
No single factor is decisive. Instead, the ATO looks at the overall picture.
For example, someone occasionally selling a few handmade items at a local market may genuinely be operating a hobby. On the other hand, someone running an online store, purchasing stock, marketing through social media and actively seeking ongoing sales is more likely to be carrying on a business, regardless of whether they still refer to it as a side hustle.
The ATO Sees More Than You Think
A common misconception is that small amounts of income earned through online platforms go unnoticed.
That assumption is becoming increasingly risky.
The ATO receives data from a growing range of sources, including ride-share services, food delivery platforms, online marketplaces and payment providers. This information can be matched against tax returns, making it much easier to identify income that has not been reported.
Whether you're selling products online, creating content, driving for a delivery platform or offering services through digital marketplaces, there's a good chance the ATO has visibility of those earnings.
If you're not declaring income because you believe it's "just a side hustle", you may be creating a much larger problem down the track.
Do You Need an ABN?
Another area that often causes confusion is whether an Australian Business Number (ABN) is required.
Many people assume they only need an ABN once their activity becomes substantial or profitable. In reality, if you're carrying on a business, you may need an ABN much earlier than expected.
The same applies to GST registration.
While GST registration is generally only required once annual turnover reaches $75,000, many growing businesses reach that threshold faster than anticipated. Failing to register at the appropriate time can create unnecessary compliance issues and additional costs.
Understanding your obligations early can help avoid surprises later.
What About Claiming Deductions?
Interestingly, many people are happy to treat their income as a hobby when it comes to reporting earnings, but want to claim deductions when expenses arise.
Unfortunately, tax doesn't work that way.
If you're operating a business, you may be entitled to claim legitimate business expenses and reduce your taxable income.
However, if the activity is genuinely a hobby, while the income may not be taxable, the related expenses are generally not deductible.
That's why correctly identifying whether you're operating a hobby or a business is so important. The classification affects both your income reporting obligations and the deductions you may be entitled to claim.
Understand Where the Line Is
The biggest risk isn't making an honest mistake.
The biggest risk is assuming there are no obligations at all.
Most people don't intentionally avoid tax. More often, they simply fail to recognise when a hobby has evolved into a business.
The good news is that getting things right from the beginning is usually straightforward. Maintaining good records, keeping business and personal finances separate, understanding your reporting obligations and seeking professional advice when needed can save significant time, money and stress later on.
"Side hustle" may be one of the most popular business buzzwords of recent years, but it isn't a tax category.
When it comes to tax, the ATO isn't interested in the label. It only cares about the activity, the income being generated and whether the correct obligations are being met.