The gig economy in Australia is growing rapidly, with over 2.5 million Australians now earning income outside traditional employment through freelancing, consulting, ridesharing, food delivery, online marketplaces, and content creation. While side hustles offer flexibility and additional income, they also come with significant tax obligations that many new freelancers overlook.
The ATO has increasingly focused on the gig economy, using data-matching from platforms like Uber, Airtasker, and Upwork to identify undeclared income. Getting your tax obligations right from the start is essential.
This guide covers everything Australian side hustlers need to know about tax for FY 2025-26, including registration requirements, allowable deductions, and record-keeping obligations.
Your Tax Obligations
Income Tax
All income from your side hustle must be declared on your tax return — regardless of how small the amount, whether you received a payment summary, or whether you consider it a hobby rather than a business. The ATO draws a distinction between a hobby (not taxable) and a business (taxable), based on factors like profit motive, repetition, and commerciality. If you are actively trying to make money from your side gig, it is a business activity and the income is assessable.
ABN Registration
If your side hustle is run as a business, you need an Australian Business Number (ABN). An ABN is free to register and allows you to invoice clients properly. Without an ABN, clients may withhold PAYG withholding tax at the top marginal rate (47%) from payments to you.
GST Registration
You must register for GST if your annual GST turnover from your side hustle exceeds $75,000. For rideshare and food delivery drivers, GST registration is mandatory from the first dollar earned — there is no $75,000 threshold. Once registered for GST, you need to charge 10% GST on your services, claim GST credits on business purchases, and lodge quarterly or annual BAS statements.
PAYG Instalments
Once your side hustle income is established, the ATO may require you to pay PAYG instalments quarterly. This prevents a large tax bill at the end of the financial year by spreading payments across four quarters. You can vary your instalment amount if your income fluctuates.
Legitimate Deductions
One of the advantages of having a side hustle is the ability to claim deductions for expenses directly related to earning that income. Common deductions include:
- Home office expenses: If you use a dedicated area of your home for your side hustle, you can claim a portion of electricity, internet, phone, and rent or mortgage interest using the ATO's fixed-rate method ($0.67 per hour for FY 2025-26) or actual cost method.
- Vehicle expenses: If your side hustle involves travel (delivery driving, client visits), you can claim car expenses using either the cents-per-kilometre method or the logbook method.
- Equipment and software: Laptops, phones, cameras, software subscriptions, and tools used for your side hustle are deductible. Items costing over $300 may need to be depreciated over multiple years.
- Professional development: Courses, certifications, and training related to your side hustle are deductible.
- Insurance: Public liability, professional indemnity, and income protection insurance related to your business.
- Marketing: Website hosting, domain registration, advertising, and promotional costs.
The key rule is the otherwise deductible principle — if the expense is incurred to produce your side hustle income and is not private or domestic in nature, it is deductible.
Record Keeping Requirements
The ATO requires you to keep records for 5 years from the date you lodge your tax return. For side hustlers, this means:
- Bank statements showing income received
- Invoices issued to clients
- Receipts for all expense claims (digital photos of paper receipts are acceptable)
- Mileage logbooks for vehicle claims (if using the logbook method)
- GST records (if registered)
- Contracts or agreements with platforms and clients
The ATO's myDeductions tool in the myGov app is a free way to track expenses throughout the year. Taking a few minutes each week to log expenses is far easier than reconstructing them at tax time.
Quarterly Instalments and Tax Planning
Unlike PAYG employees who have tax withheld automatically, side hustlers need to proactively manage their tax obligations. If your total tax liability exceeds $1,000, the ATO will issue quarterly PAYG instalments. Failing to pay these on time incurs the general interest charge (GIC), currently 11.12% per annum.
A recommended approach is to set aside 25-35% of every side hustle payment into a separate savings account for tax. This covers income tax, the Medicare Levy, and potentially GST. Paying quarterly instalments on time avoids interest charges and prevents a painful year-end tax bill.
Conclusion
Running a side hustle in Australia offers financial freedom and flexibility — but it comes with serious tax obligations. Registering for the right identifiers (ABN, GST), keeping meticulous records, claiming legitimate deductions, and staying on top of quarterly instalments are the foundations of compliant side-hustle finances.
Use the BizMetrixs Side Hustle Tax Calculator to estimate your quarterly obligations, plan for tax time, and keep more of what you earn.