Aussie tax question about contracting - please help.?

Question

I work a normal 9-5 job earning a salary and obviously paying tax each month.

I also contract out in my spare time, issue invoices with an abn and they pay into my bank account. With this extra contracting out that I do, I have only earned $4500 in the tax year. Do I still pay tax on this amount? I've heard that there is a rule about hobbies/jobs that earn money under $5000 a year and that you don't have to pay tax on that extra income because it's so low.

Can someone please advise if this is true, and if so what is the rule called or how do I find more info on it? I have just tried to find this on the ATO website but it's very confusing and I'm going around in circles.

THANKS

Answer 1

Generally if you issue invoices with ABN, you get paid for them, those payments are really mullah for you carrying on an enterprise - not hobby or recreation.

I understand that the Tax Office does not draw the line on $5000 or $50,000 (like the Tupperware Tax Advice said...on the earlier Y!A posting) or $500,000 to say whether it is a hobby or recreation or not.

We need to see whether it is repeated, regular, continuous, has a significant commercial purpose....?

This reading might be a bit long. Bed time reading if you want to see something from the ATO website - as opposed to just a random answer from Y!A. http://law.ato.gov.au/atolaw/print.htm?D...

Basically it goes like this - for anyone to register for ABN - you actually need to carry on an enterprise. A hobby is specifically excluded from this definition of "carry on an enterprise". It doesn't matter how small the enterprise is - if the intention is to make profit - then it is. Therefore, the logic goes, if you have an ABN and you churned various tax invoices out with your ABN printed on them, then you have been carrying on an enterprise and the mullah is to go to your tax return.

Lastly - If I may suggest - rather than trying to disguise this as a hobby, whereby you then also can't claim any deduction relating to the activities - what about trying to see whether you can access the Entrepreneur tax offset? The entrepreneurs’ tax offset may reduce your tax payable by up to 25% where your business has turnover less than $75,000. Just an idea.

Hope the above helps - which ever way you decide to go :-)

Answer 2

Yellow is right. Put aside at least 22% of it for tax when you include in under Net Income from Business or Personal Services Income in your individual tax return (and don't forget to claim the ETO). The "hobby" guidelines are generally targeted at people trying to offset their hobby losses (instead of profits) against income to reduce tax... if you are making a profit and using an ABN (hobbyists aren't required to use ABN's) then you can safely assume you'll have to pay tax on it.