Hobby or Business? The ATO's New Draft Ruling for Side Hustles and Content Creators
The ATO has released a draft ruling on when a side hustle becomes a business. Here's how it decides, why freebies count, and what it means for your tax.
Selling candles at the weekend markets. Posting baking videos that now earn a bit from the platform. Getting sent free skincare in exchange for a review. Plenty of people with a normal day job have a little something on the side, and most have never stopped to ask the question that decides how it is taxed: is this a hobby, or a business?
In mid-October 2026 the Australian Taxation Office (ATO) released a draft ruling that tries to answer exactly that. It is called TR 2026/D2, Income tax: carrying on a business by an individual, and it sets out how the ATO decides whether what you are doing is a business, an investment, or a hobby. At the same time, the ATO put out a warning to content creators that a hobby can quickly become a business.
Here is what the draft says, why the answer matters for your tax, and how to work out where you sit.
Why the label matters
The difference between a hobby and a business is not just a name. It changes what goes on your tax return:
- A genuine hobby: the money you make is generally not taxable, but you also cannot claim any of the costs.
- A business: everything you earn from it is taxable income, added on top of your salary and taxed at your marginal rate (the rate on your top dollar of income). In return, you can claim the costs of running it.
- If the business makes a loss, special rules (explained below) decide whether that loss can reduce the tax on your wages, or has to wait.
How the ATO decides
There is no single test, no dollar threshold, and no form that settles it. The ATO looks at the whole picture and weighs a set of indicators together. No one indicator decides the answer on its own. The main ones are:
- Profit: are you doing it to make money, and is there a real prospect of a profit, not just a dream of one?
- Repetition and regularity: do you do it often and consistently, or was it a one-off?
- Size and scale: how much are you selling, earning or producing?
- Businesslike organisation: do you plan, keep records, set prices, market yourself, and keep the money separate?
- Commercial character: is it run the way others in that industry run their businesses?
The trap: "I got an ABN, so I'm a business"
Not necessarily. The draft makes the point that registering an ABN (Australian Business Number), setting up a company or building a website does not by itself mean a business has started. Intending to run a business is not enough; what counts is what you actually do. It also works the other way: you do not need an ABN for the ATO to treat a regular, profit-focused side hustle as a business.
Content creators: freebies count
The draft and the ATO's accompanying warning pay special attention to content creators, influencers, streamers and podcasters. The ATO's message is blunt: if you are creating content and getting paid, whether in cash, products or experiences, you are probably in business for tax purposes.
The ATO says income from content creation is not only what lands in your bank account. It includes:
- Advertising and platform payments.
- Sponsorships and affiliate link commissions.
- Tips, donations and subscriptions from followers.
- Free products, services or experiences you receive in exchange for promoting them.
There is some reassurance too. The ATO has said that receiving the occasional free product does not automatically make you a business. It is the regular, organised, profit-focused pattern that tips you over the line.
The ATO also says it matches data from platforms and other sources, and that creators are often surprised by an audit after undeclared income turns up that way.
Worked example: one side hustle, three outcomes
Priya earns an $85,000 salary. On the side she posts baking videos. In 2025-26 she earned $4,000 from platform payments and sponsorships, and a brand sent her a $1,000 stand mixer in exchange for a review video. Her costs for the videos (ingredients, props and editing software) came to $2,000.
Outcome 1: it is a business that makes a profit. Priya's income is $5,000: the $4,000 cash plus the $1,000 value of the mixer, because she received it in return for promotion. Take off $2,000 of costs and her profit is $3,000. That is added to her salary, taking her taxable income to $88,000. She is in the 30% tax bracket and pays the 2% Medicare levy, so the extra tax is $3,000 x 32%, which is $960.
Outcome 2: it is a business that makes a loss. Say the next year Priya earns the same $5,000 but spends $9,000 on gear and costs, a $4,000 loss. You might expect that loss to come off her salary and save her $4,000 x 32%, which is $1,280. But because of the non-commercial loss rules (explained next), she most likely cannot use it against her wages that year. Instead it is deferred, carried forward to use against future profits from the baking channel.
Outcome 3: it is a genuine hobby. If Priya only posted occasionally for fun, with no profit focus, the money would generally not be taxable and none of the costs claimable. With regular sponsorships and products received for reviews, though, that is a hard argument to make.
The loss rule that catches side hustles
Being a business does not mean every loss comes straight off your salary. Under the non-commercial loss rules, an individual running a business can only offset a loss against other income, like wages, if they meet an income requirement and pass at least one of four tests.
The income requirement: your taxable income (ignoring the business loss), plus reportable fringe benefits, reportable super contributions and net investment losses, must be under $250,000. Then you need to pass one of these:
- Assessable income test: the activity brought in at least $20,000 in the year.
- Profits test: it made a profit in at least three of the last five years, including this one.
- Real property test: it uses real property (land and buildings) worth at least $500,000.
- Other assets test: it uses other assets (not counting real property and certain vehicles) worth at least $100,000.
Reality check: a small loss usually waits
Most weekend side hustles bring in well under $20,000 and do not own $100,000 of equipment, so a loss usually is not lost, but it is deferred. It is carried forward and used against that same activity's profits in a later year. If you fail the tests, a loss cannot be used to cut the tax on your salary just because you have an ABN.
GST: the other line to watch
Separately, once a business's turnover (all the money coming in, before costs) reaches $75,000 a year, or you expect it to, you must register for GST, the 10% goods and services tax. The ATO's warning to creators specifically flagged that GST registration may be required.
It is still a draft
TR 2026/D2 is a draft. The ATO is taking public comments until late November 2026, and the final version may change. The underlying indicators are not new; what is new is a single, up-to-date ruling for individuals, with modern examples like content creators and a new business that makes a loss in its first year.
What to do now
If you have money coming in from something on the side, a few simple steps go a long way:
- Be honest about the pattern. Regular income, a profit focus and businesslike habits point to a business, whatever you call it.
- Keep records of everything you receive, including the value of free products and experiences you got in return for promotion.
- Keep receipts for your costs. If it is a business, they are claimable; without records, they are not.
- If your 2025-26 return has already gone in and you left out side income, you can amend it through myGov.
- If you are unsure, or your activity is growing quickly, a registered tax agent can look at your specific situation.
FAQ
Is hobby income taxable in Australia?
Income from a genuine hobby is generally not taxable, but you cannot claim the costs of a hobby either. Once an activity is run regularly, in a businesslike way, with the aim of making a profit, the ATO is likely to treat it as a business, and the income becomes taxable. This is general information, not tax advice.
Do I have to declare free products I get as a content creator?
If you are in business as a content creator, the ATO says free products, services or experiences you receive in exchange for promoting them count as income, alongside cash payments, sponsorships, affiliate commissions and tips. The ATO has also said the occasional free product does not automatically make you a business.
Can I claim my side hustle loss against my salary?
Only if you are running a business and you pass the non-commercial loss rules: broadly, an income requirement of under $250,000 plus one of four tests, such as bringing in at least $20,000 from the activity that year. If you do not pass, the loss is usually carried forward and used against future profits from the same activity.
Run your own numbers