GST and ride-sharing: why the ATO believes Uber must pay
Monday, May 25, 2015/
Are Australian Uber drivers taxi drivers? Uber says they are not, but a recent Australian Taxation Office advisory on the tax and the sharing economy, says they are, and must therefore register for GST from August 1.
Uber has hit back at this decision, stating that its “driving partners should be treated no differently to any other independently-operated micro or small businesses, and other sharing economy participants.” It has said it will challenge the decision.
So what is the situation?
When does a person or entity have to register for GST?
Under the GST Act, you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000 per annum). Enterprises with an annual turnover below this threshold can register for GST, although they are not required to do so.
However, this registration threshold does not apply to those who provide taxi travel as part of their enterprise – they are required to be registered for GST regardless of the level of turnover. This was to avoid confusion over pricing if some were registered for GST and others were not.
Are Uber drivers providing taxi travel?
Taxi travel is defined in the GST Act to mean “travel that involves transporting passengers, by taxi or limousine, for fares”. “Taxi” is not defined in the legislation and must therefore take its ordinary meaning. In a 2002 Interpretative Decision, the ATO referred to the Macquarie Dictionary definition of taxi as meaning “a motor car for public hire, especially one fitted with a taximeter”.
Uber has responded to the new ATO guidance by arguing that “ridesharing is not a taxi service”. While there is no one agreed-upon definition of ride-sharing, the ATO has noted that the information they released does not apply to non-commercial car-pooling or car-sharing arrangements.
Based on previous ATO decisions, the critical issue in determining whether Uber drivers are providing taxi transport is whether the vehicles used are available for public hire.
Uber has highlighted the fact that drivers cannot accept street hails, cannot wait at taxi ranks and do not use taxi meters. But the vehicles used by Uber drivers are available for public hire – members of the public use the Uber app on a smart phone to book the service.
So while the method of booking the service may be different to a conventional taxi service, the service being provided is the same as that provided by a conventional taxi driver.
What happens if a driver doesn’t register for GST?
A person who is required to register for GST and fails to do so is liable to a penalty of up to $3,400. Additionally, failure to register will not remove the liability of the driver to pay GST to the ATO or to lodge GST returns.
While the GST is a consumption tax, borne by the final consumer, the liability to pay the GST sits with the person who makes a taxable supply. As transport services are not GST-free, they are taxable supplies if the person/entity providing them is registered or required to be registered for GST.
The ATO has deemed ride sharing drivers must register for GST, so a driver who fails to register for GST will still be liable to pay an amount of the fare paid by the customer to the ATO. Failure to lodge a business activity statement or remit GST to the ATO will also result in penalties and general interest charges.
The ATO has wide-ranging powers to access documents and collect information for the purpose of applying and administering the GST, and will be able to request information in relation to drivers and fares received from Uber (or similar companies). Penalties can also be imposed for failure to comply with these requests.
The ATO has specifically stated that they were not expressing a view on the legality of ride-sharing arrangements. An illegal business operation does not prevent income derived from that business from being subject to income tax. Similarly, there is nothing in the GST Act that prevents supplies of “illegal” goods and services from being subject to GST.
Is the ATO singling out Uber?
While there are income tax implications for those engaged in other “sharing economy” industries – such as accommodation sites like Airbnb – there will be no requirement to register for GST unless the $75,000 turnover threshold is met.
Uber has stated that the new ATO guidance “unfairly singles out the sharing economy”; however this is not the case. The ATO is singling out ride-sharing drivers, not because of their participation in the shared economy, but because of the services (that is, taxi transport) they are providing.
Taxi transport has always been treated differently to other industries under the GST Act. Requiring ride-sharing drivers to register for GST is simply ensuring that taxi services provided in a “shared economy” are treated the same way as those provided in a more traditional manner.