If you’ve booked a car ride or a stay at a holiday house online, you are one of a growing number of Australians participating in the “sharing economy.” Australia is one of Airbnb’s biggest markets, with 18.5 per cent of Australians aged over 18 having an account. Likewise, Uber reportedly has more than 50,000 drivers across the country.
But there’s a downside to these sharing services — confusion over tax compliance and a commensurate rise of the black (or “cash”) economy, which reportedly leads to as much as $15 billion in lost tax revenue. It’s what the Federal Government took aim at in the recent Budget.
In fact, thousands of Australians engaged in the sharing economy are, for the first time this financial year, becoming small businesses with tax obligations. The problem is that many don’t understand what these obligations are. Some sharing economy participants also think of these services as “money on the side” without realising that tax rules still apply.
What exactly is the sharing economy?
The term “sharing economy” is a misnomer. Many of the services which fall under this category like Uber and Airbnb are simply delivering something desirable for a fee — it’s a commercial activity involving the exchange of money — not “sharing” in the traditional sense of the word.
This is where complications arise. Take ride-sharing for example, where a private asset — a car — is converted into an asset with a mix of private and business uses. So what do sharing economy participants need to be aware of to ensure they’re complying with tax obligations?
What ‘home-sharers’ need to know
The ATO has said property owners providing accommodation through platforms such as Airbnb or Stayz need to keep records of income and expenses just as for any rental property.
People renting out “commercial residential properties” have different income tax and GST obligations than the typical casual Airbnb home-sharer. GST isn’t payable on residential rent from typical home-sharing accommodation, and GST credits can’t be claimed.
However, the ATO says home-sharing property owners can claim the same income tax deductions that would apply to a rental property, including fees and commissions charged by the platform, and properly calculated portions of utility payments, council rates, cleaning and maintenance costs, depreciation on furnishings and equipment, and mortgage interest.
Owners will need to keep records of when the room was actually rented in order to correctly claim expenses.
Finally, renting out part of a house will raise all the capital gains tax issues raised by any home used to produce income. The ATO notes that home-sharers may also need to pay capital gains tax when they sell the house or unit.
What ‘ride-sharers’ need to know
The ATO has ruled that all UberX drivers must register for GST, even those earning less than $75,000 per year. Uber unsuccessfully challenged this ruling in the Federal Court and, at time of writing,was considering a further appeal. In the interim, ride-sharing partners are advised to remit GST to the ATO.
Since the Federal Court action, the ATO has stated clearly that it believes ride-sharing “is taxi travel” and drivers must have an ABN, pay GST on fares, and lodge activity statements. They can also claim GST credits.
For Uber drivers, GST and income tax are payable on the full amount of the fare. Uber deducts a fee before paying drivers, and that fee is tax-deductible. And here’s where the confusion arises — because Uber is a foreign company, drivers cannot claim a GST credit for the fee.
When ride-sharing drivers pay income tax, deductions are likely to include the normal costs such as car loan or lease payments, insurance, petrol, car servicing, mobile phone costs, parking and any cleaning costs, as well as passenger extras.
Ride-sharing drivers will need to keep records of expenses in order to claim them as deductions.
What is the future of ‘sharing’?
The sharing economy is relatively new, and we’re still working out how to manage these disruptive new ways of doing business. More than likely, tax rules and other laws impacting these services will continue to evolve.
Uber has not yet announced an end to its legal action against the ATO over GST registration. Meanwhile, policy debate continues over treatment over sharing-economy businesses.
However, the fact remains that the sharing economy will continue to grow: PricewaterhouseCoopers has projected that by 2025, sharing services will generate US$335 billion of annual sales globally.
For all its disruption, many observers see the sharing economy as a positive development. Consumers, workers and the taxpayer can all come out ahead. But first, they have to get used to new ways of working — and to how they account for their work.
If you’re among the sharing economy participants with tax obligations this financial year, don’t put your head in the sand. Reach out to one of the many highly-qualified registered BAS or tax agents that can help you accurately report your business income, claim your eligible deductions, and streamline and systemise your record keeping.
Matthew Prouse is the Solutions Manager at Partner Products, Xero