The Australian Tax Office has declared people who generate an income through “share economy” services are really running a small business, with drivers from ridesharing service Uber soon to be forced to collect GST.
Uber has slammed the decision by the ATO but on the upside, the ruling also appears to confirm these small business operators will be eligible for the $20,000 tax write-off for business assets provided in this year’s federal budget.
The ATO ruling affects individuals who earn an income through ridesharing service Uber, accommodation marketplace Airbnb, car park leasing platform Divvy, and odd-jobs marketplace Airtasker. It also covers other, similar services where people earn an income as a result of services booked through an online marketplace or facilitator.
The ATO warns tax laws that apply to conventional businesses, such as accommodation rental or taxi services, will be applied in the same way to activity conducted in the sharing economy.
This means people earning income from those services will need to keep records of both income earned from those activities, as well as any allowable deductions.
In some cases, people will also need to charge GST, claim input tax credits, lodge a business activity statement and remit net GST from activities. This will apply to Uber drivers, with the ATO now considering ridesharing service is a full-taxi service.
Tax expert Mark Chapman, director of Chapman Tax Consulting, told SmartCompany the ruling means Uber drivers will have to charge GST but this does not necessarily apply to other businesses.
“Basically, if you run a business, you don’t need to register for GST unless your turnover reaches $75,000 – you can if you want, but you don’t have to,” Chapman says.
“But that exemption doesn’t apply to taxi drivers, who have to pay GST from the first dollar,” Chapman says.
Prior to the ruling, Chapman says Uber had argued its services don’t amount to a full-taxi service and most Uber drivers do not need to register for GST because they do not earn more than $75,000. But the ATO has now ruled Uber is a taxi-like service, and the company’s drivers will therefore have to charge GST and meet any associated compliance measures.
While the focus for the ATO in the case of Uber drivers is GST compliance, Chapman says for people renting rooms through services such as Airbnb the focus will be more around income tax.
“The focus is income tax from services on Airbnb. It’s where people renting a spare bedroom in their house or an apartment they’re not using and not declaring that income. They’re also running a business, but most are not earning the $75,000 threshold.”
In a statement, Australian Taxi Industry Association chief executive Blair Davies praised the decision, describing it as levelling the playing field.
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”The ATIA wrote to the Board of Taxation a year ago highlighting the anomaly where taxi drivers have to register for GST and declare their earnings for income tax purpose but ride-hailing drivers seemingly could fly under the proverbial radar,” Mr Davies said.
In its official statement Uber blasted the ATO decision, describing it as “dictating government policy for the sharing economy by imposing a flawed interpretation of a law that was introduced in the 1990s upon participants of a new business model that is only one year old”.
“Today’s decision by the ATO is not a tax on Uber but rather, impacts the over 9000 ordinary Australians who drive on the uberX platform,” Uber said.
“These are 9000 individuals who will now be caught up in red tape before they even accept their first ride, and will then be hit with a tax on their very first dollar earned, unlike like truck drivers, painters, online sellers, gardeners, other sharing economy participants, and every other small business who do not have to collect GST until their business reaches $75,000 p.a. in turnover. The typical uberX partner in Australia works for around 20 hours a week and takes home around $30,000 p.a. – well under the government’s threshold for GST.”
“With the stroke of a pen the ATO has also created an administrative burden of 36,000 new tax filings every year. Given the flexible and part time nature of uberX, thousands of those tax filings will be for less than $50 in GST – and in some periods zero. The administration costs for the ATO to process and enforce compliance for all of those filings could end up being much higher than the tax the government will collect, resulting in a waste of taxpayer money and government resources.”
In its statement, ATO deputy commissioner James O’Halloran said Uber drivers have until August 2015 to register for an ABN if they haven’t done so already.
“Affected drivers must register for GST, charge GST on the full fare, lodge business activity statements and report the income in their tax returns,” O’Halloran said.
“Current drivers that don’t have an ABN and are not registered for GST can easily apply online.”
”We understand that people often don’t consider the tax consequences of new and emerging business models. Our first step is to assist taxpayers involved in the sharing economy to meet their tax obligations.”
However, Chapman says while the ATO would also argue the decision creates a level playing field, it is unlikely to be the end of the matter.
“I think this isn’t the end, and I suspect Uber will challenge it and fight with the tax office to get this view changed.”