Does the taxman need to know about your side hustle?
With our growing side hustle industry in South Africa, it’s important to keep you and your business safe and in the clear. Here's when and how to go about declaring your side hustle income with ease and confidence.
With a population as diverse, talented, and creative as South Africans, side hustles have become as beloved a part of the Mzansi experience as braais. And the value of side hustling in SA is growing at a steady and profitable rate.
In fact, in 2021, Momentum and Unisa’s Household Index found that the bulk of South Africans with a side hustle earn between R12 000 and R250 000 a month, putting them well beyond the tax threshold. The tax threshold sits at about R7 600 a month or R91 250 a year if you are under the age of 65.
But one question many entrepreneurs may be faced with as their side hustle starts to take off is: does the taxman need to know? Well, given the tax threshold, if you're taking home profit within that range, it may be better to declare than avoid declaring. Here's why:
So, how do you go about declaring your tax?
You need to record income earned from your side hustle in the Local Business section of your tax return (ITR12). This income will be added to your salary income and be taxed according to the normal tax tables at your marginal rates.
If you don't declare it yourself, external entities may notify SARS on your behalf. Particularly if you work for an international company like Uber or Airbnb – tax compliance or responsibility is placed on the company's users and hosts.
And, if you freelance or contract locally, the SA company may add you to their formal payroll, which will deduct a withholding tax and provide an IRP5 at the end of the tax year to you and SARS.
What happens if you keep quiet?
While the saying loose lips sink ships may apply to other things in life, it doesn’t apply to you staying on top of your tax compliance. It’s always advisable to declare any additional income to remain tax compliant.
It’s important to know that SARS uses multiple data sources, namely; bank records, property deeds, motor vehicle registration and more. They’re able to monitor taxpayers with unexplained income or wealth. SARS are also able to monitor taxpayers who earn money through overseas businesses and fail to declare it on their local tax returns.
Failure to declare formally or through SARS’s voluntary disclosure programme could lead to criminal charges and prosecution.
Watch out for provisional tax
Aside from your standard tax returns and declaration, you should also watch out for provisional tax. If your side hustle is taking off and climbing steadily, be sure to check if you are liable for provisional tax, i.e. tax paid in advance.
With provisional tax, you are obliged to register and pay this tax when you earn more than R30 000 of income, from which pay as you earn is not deducted. Ensure that you budget accordingly and set money aside in advance to pay provisional tax in August and February.
While it’s exciting to earn some extra cash on the side, always err on the side of caution and keep yourself and your business safe by declaring your side income in advance and avoiding the risk of criminal prosecution.
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