Have you ever let a room on the popular accommodation site Airbnb? Thinking of sharing a ride with pseudo taxi service Uber?
If you participate in what’s now called the “sharing economy”, you may have some tax to pay.
The Australian Tax Office says the sharing economy is a new way of “connecting buyers (‘users’) with sellers (‘providers’) for economic activity”. That definition includes a host of new services like Airbnb, Uber, AirTasker and MenuLog, and it has tax implications that you should be aware of.
For the last few months the Tax Office has been fighting with Uber to introduce goods and services tax (GST) on its share-drivers (that is, everyday people who decide to become casual Uber employees).
The Tax Office maintains that Uber drivers are viewed as being independent contractors, so they’re required to register for GST like normal taxi drivers – no matter what their yearly earnings are.
That’s one example of how the Tax Office is chasing sharing economy participants for its GST and income tax dues. There are more, but to begin with:
The Tax Office says you’re participating in the sharing economy if you:
- Use a car to transport members of the public for a fare (e.g. Uber)
- Provide odd jobs, errands, deliveries or more skilled services on an ad-hoc basis
- Rent out or let a room or other property for accommodation (e.g. Airbnb)
- Rent out or let a car parking space
Providing a sharing economy service for money most likely means you’re earning assessable income. And that’s what the Tax Office wants to tax – even if you’re not “carrying on a business” in doing so.
So if you’re earning assessable income from providing sharing economy services, you’ll need to keep records of:
- income from that activity, and
- any allowable deductions (apportioned for private use).
“These records will help you to include these amounts in a tax return,” the Tax Office says, “and pay any tax owing from your activities on time.”
What about GST?
If you provide sharing economy services (like those listed above) and you earn money from those services, you’re carrying on an enterprise even if you’re not registered as a business.
So, if your annual turnover from that enterprise activity exceeds $75,000 you’ll need to register for GST.
That’s not counting Uber drivers — if you provide “taxi travel” you need to be registered regardless of your turnover.
If you do end up registering for GST, you need to:
- charge GST when you make a taxable supply
- claim any input tax credits you are entitled to for related purchases, and
- lodge an activity statement and remit any net GST from your activities.
Some handy examples of the “sharing economy” from the Australian Tax Office
The general rule of thumb is this: If you provide sharing economy services you’ll have a liability to pay tax as an enterprise.
Here are some helpful case studies from the Tax Office that explain trickier circumstances.
EXAMPLE 1 – Renting out rooms in a house not subject to GST
Sue owns a house that contains two furnished bedrooms. She enters into an arrangement with a facilitator (e.g. Airbnb) to have the rooms separately advertised to guests who will pay a fee for being able to rent the rooms on a nightly or weekly basis. Sue provides linen but does not supply meals to the guests who have access to the kitchen to prepare their own meals.
Renting out a room in your house is an “input taxed supply” of residential rent.
Sue is not required to charge GST. Sue will also not be able to claim any GST included in expenses she incurs.
At the end of the year, Sue includes all the rental income in her income tax return. She also claims a deduction for the fees charged by the facilitator and for a proportion of her mortgage, electricity and other expenses relative to her renting activity.
If Sue sells the home she will also have some capital gains to account for as the home has been used partially for rental income purposes.
EXAMPLE 2 – Driving passengers for a fare
Anton, an office worker, sees an advertisement about how he can earn some extra money by transporting passengers in his car.
The service is operated by a third-party facilitator (e.g. Uber), which notifies Anton of the location of possible passengers and provides a platform through which passengers can request transportation from Anton to a destination of their choice.
Anton charges a commercial fare that is based on distance and time, and he (or the facilitator on his behalf) issues invoices to his customers.
The frequency of Anton’s arrangement varies from week to week. Most weeks, Anton transports between five and 15 passengers, but in some weeks he does not operate at all.
Anton is providing “taxi travel” and must be registered for GST from the very first time he takes a passenger.
While Anton needs to account for the GST charged on the full fare, he also gets to claim input tax credits for a proportion of the GST he pays on fuel and other expenses for his car.
Anton is thinking about buying a new car and he knows he will be able to claim back some of the GST he is charged by the dealer. He also knows that there are some GST adjustments he needs to make when he sells his existing car, which he has been using to provide taxi travel.
At the end of the financial year, Anton includes the income from his fares in his income tax return. He also claims a deduction for a proportion of his car expenses relative to its income-producing use.
Make sure you don’t get landed with a surprise tax bill at the end of the year!
If you have been operating in the sharing economy, or you are thinking it might be for you, it would pay to get some professional tax advice sooner rather than later.
Contact us to talk about your own situation so you can get the most out of these relatively new opportunities.