In the near future, you may be helping clients deal with letters of demand from the ATO for tax on income earned from “sharing economy” activities. Or, you may want to proactively help clients navigate how taxes apply to their situation.
The sharing economy is opening up new opportunities for people to earn extra income. Now they are making money using their car and a ride-sourcing platform like Uber. Or they could rent a room or even a whole house on a short-term basis using online platforms like Airbnb or Stayz. The sharing economy, is booming. A recent Deloitte Access Economics survey estimated that the value of sales of goods and services transacted on sharing economy platforms in NSW in 2016 was $2.6b and the sector grew by nearly 70%.
The ATO knows about the sharing economy and wants people to pay income tax or GST, as appropriate, on earnings. And it has ways of finding out! For example, it will be collecting data from banks to identify individuals engaged in providing ride-sourcing services during the 2016/17 and 2017/18 financial years. It will match payments to drivers made by ride-sourcing facilitators like Uber with what drivers report in their tax returns. They estimate obtaining records on up to 60,000 individuals.
Many of the tax issues raised by sharing economy activities will be familiar to tax advisers. However, the platforms and transactions may not be familiar and advisers should be aware that involvement in additional activities may have unintended consequences for a client’s tax position.
For example, an individual involved in ride-sourcing with Uber must be registered for GST, even if they are under the annual GST turnover threshold of $75,000. As a consequence of becoming registered, they may need to start accounting for GST on other sales which would be taxable but for being under the registration threshold. The ATO says that becoming registered means all taxable GST supplies made in relation to sharing economy activities are swept into the GST net.
If a client carries on a business of providing ride-sourcing services, then the following GST consequences flow. The individual must:
- get an ABN
- register for GST (regardless of how much is earned)
- account for GST on the full amount of each fare, through the Business Activity Statement (BAS) and
- claim the business proportion of GST input tax credits.
For income tax purposes, the ATO says that there may be circumstances where activities do not constitute carrying on a business. In that case it may just be a hobby which does not have tax or reporting obligations. However, the bar seems to be set very low and generally the ATO considers that Uber drivers are running a small business as a sole trader, and need to declare all the income earned from providing ride-sourcing services and can claim the expenses related to providing the services as a deduction.
Carrying on a business?
If a client has a sharing economy tax problem, the adviser may need to deal with the threshold issue of working out if the client’s activity amounts to carrying on a business or if in fact it is a hobby or recreational activity. This will determine whether payments are assessable for income tax and whether the client should register for GST purposes.
The ATO has developed a set of factors in a number of tax rulings and guidance which it considers point to an activity being a business. The most significant factors seem to be the existence of a profit-making intention, whether an activity is “commercial” and the continuity and regularity of an activity.
In online guidance on the tax implications of the sharing economy, the ATO seems to be saying that almost all sharing economy activities will be regarded as a business, unless they fall under very minimal levels. An important factor is that providers are operating on sharing economy websites. That gives the activity the commerciality, profit motive and regularity to be a business, even if the individual did not intend to start one.
Be aware that the tax rules are different, depending on which platform is used. For example, GST does not apply to residential rent, eg receipts from renting part of one’s home on Airbnb. However, GST does apply to commercial rents, eg on accommodation like a hotel room or office space.
Webinar: the Airbnb platform
Check out this CCH Learning webinar on the taxation issues of the Airbnb platform on 27 April 2017. Presented by Adam Mallabone, Partner, and Daniel Slabicki, Senior Consultant with advisory firm, Crowe Horwath, the webinar will look at relevant income tax, CGT and GST issues involving Airbnb.
Find out more about the Sharing economy with CCH iKnow.