Earning on the side - is it really worth it?
For most of us, the idea of earning a little extra money on top of our regular wage is a very attractive prospect. Sometimes it's a matter of necessity to pay the rent on time, and at others it's the pleasant side-effect of a hobby we love doing. Either way, there are some important considerations you need to think about before turning your hand at boosting the home coffers.
How taxing is your second income?
Before you start earning extra money on the side, it's worth doing some calculations to figure out whether you'll actually be making as much as you think you will. The tax-free threshold (currently $18,200) applies to your income as a whole and will already be claimed by your main job, so every dollar you earn in your second job will be taxed. This means:
- If you're an Australian resident (for tax purposes) the first $18,200 of your yearly income isn't taxed - this is the set benchmark for the tax-free threshold. When you have a second job you are required to choose which job you claim the tax-free threshold from and let your employer know.
- The second-job employer will then withhold tax without including the tax-free threshold. This is intended to reduce the likelihood of you having a tax debt at the end of the financial year.
- Keep in mind that even when you use the ATO tax tables to properly calculate the amount of tax that should be withheld from you, the total tax paid on your income may not be enough to cover the tax payable because of progressive tax rates. It is a good idea to obtain professional advice from a registered tax professional.
- If your second income is from a hobby or home business, you'll be required to declare your earnings and pay tax according to your total taxable income for the year (your salary plus extra earnings). It may be worth considering putting some money aside each month in case you have a rude shock when you receive your tax bill.
Check the current year's tax brackets at the ATO website and make sure to do your sums.
At the end of the day, even if your second income isn't as rewarding as you'd anticipated, if you're doing something you enjoy or building a business that you hope will become your main income in years to come, you may consider it time and effort well spent.
Will it impact your current job?
You may not be required to inform your employer that you're taking a second job or earning an income outside of work, but it's well worth looking at your contract to see how a second job could impact your current position or vice versa. Some contracts may prohibit you from working in the same field, especially if you're privy to sensitive company information and the second job could cause a conflict of interest. Other contracts may have an intellectual property clause for all your work during your period of employment, extending even to work outside the office. To be on the safe side, check your contract and consider chatting to your manager.
Apart from the tax implications, a second job is bound to have an impact on your relationships as it will take your time and energy. Consider all the aspects of a second job and consider discussing it with those in your life it may affect. If it's something you're certain you want to pursue, then go for it and good luck.
24 Jun 2014