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Taxes and the Law in Australia for Digital Nomads

When setting up an online business of any kind, there are two particularly important things to consider. Taxes and legalities.

Now these vary vastly between different countries, so before you jump onto the online bandwagon make sure you do your research and talk to an accountant and a lawyer (at the very least an accountant).

Most countries have a Government site they can go onto that will give you the basic information to start, and you can go from there.

The reason I bring these up is because it is easy to get confused as to when your hobby or side hustle gets to the point that it becomes a taxable business.

According to the Australia Taxation Office, the difference is this:

A HOBBY

A hobby is a pastime or leisure activity conducted in your spare time for recreation or pleasure.

Taking on a hobby can have the following key benefits:

  • You can gain personal enjoyment and satisfaction from the activity
  • You can gift or sell your work for the cost of the materials
  • You can do it in your own time or when people contact you
  • You have no reporting obligations of a business

If your activity is a hobby you may need to meet certain requirements to transact with a business.

A business normally collects the seller’s Australian Business Number (ABN) when it makes a purchase. If the seller can’t provide an ABN, then a business must withhold the top rate of tax from the payment for any total more than $75 for tax purposes (this is required no matter when the business is located in the world).

Since you are not a business and therefore do not have an ABN, you need to provide evidence that your activities are a hobby. You need to provide a Statement by a Supplier form (found on the ATO website) to notify the payer that you are exempt from this tax withholding.

You don’t need to declare the income amounts you make from your hobby to the ATO.

…but you also can’t claim any losses from your activity if it is a hobby.

You still should track all your income and expenses even if it is a hobby, so if you are asked down the track you have records.

 A BUSINESS

You are a business if your activity, overall, is commercial with an aim to make a profit. Consider the following key questions to determine if you run a business:

  • Is the activity you undertake for commercial purposes?
  • Is your main intention, purpose or prospect to make a profit?
  • Do you regularly undertake your activity?
  • Is your activity planned, organised and carried out in a business like manner?

If you are running a business then the following will apply to you:

  • You can apply for an ABN to use in business transactions
  • You can register a .com.au website once you have an ABN
  • You have access to government information, services and concessions for businesses
  • You can establish a business identity when selling to customers and other businesses
  • You can claim tax deductions for business expenses against your taxable income
  • You need to declare your income to the ATO in your annual return
  • You must keep records for your business for tax and other obligations

If you are still unsure, the ATO have a tool for artists, bloggers and creatives to help determine their government obligations: https://start.business.gov.au/

Did you know?

It’s a myth that there is a dollar threshold to be in a business. Some people can have very expensive hobbies! What matters is whether, as a whole, your activity is commercial with an aim to make a profit. Once you’re in business, there are dollar thresholds that can affect your tax obligations. (from business.gov.au)

blogger typing on a laptop in a cafe

Freelancing & Consulting

While affiliate marketing, stock images and PPC may fall under ‘Hobby’. Things like freelance work, dropshipping and consulting may not.

It is worth considering registering as a Sole Trader if you are engaging in freelance work. Especially if you are planning for it to take over as your primary source of income. Again, talk to a lawyer and an accountant to be completely sure of your tax obligations.

Personally, I chose to register as a sole trader because when I was setting up my dropshipping sites, I was being asked to provide ABN details. Since I couldn’t, tax was automatically being withheld at a higher rate then would be required if I had my own ABN. I also considered that since my long term plan is that it becomes profitable and earns an income, there will be tax implications. Better to be prepared at the beginning then try to fix it later.

As a sole trader, any income I earn is taxed at my personal income tax rate, which is fine for now.

What You Need to Consider

The entire goal of this site, and any work I undertake, is to earn a profit and an income. Which means tax implications. While I certainly started all of this as a hobby, it is definitely not my intention that it stays that way.

I spoke to an accountant who was able to assist me with my goals and business plans, so I strongly recommend you do the same no matter which path you are considering.

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