The desire to pay less for goods and services coupled with the convenience of being able to conduct such transactions online or via apps, has lead large numbers of people to use the “sharing economy”. Demand for greater flexibility in employment and the way we access services and purchase products collectively have contributed further to this boom. Unfortunately, however, none of this removes the need to pay tax!
It is reported that over two-thirds of Australians now earn and spend money via the sharing economy. We noted in an earlier article the ATO advice that tax law applies in the same way to sharing economy ventures as it does to more conventional business activities.
The ATO has recently sharpened its focus on this area, updating its information on the “sharing economy and tax”.
If you are a provider of any of the services detailed below, here is a brief refresher on the sharing economy and how tax applies.
Are you part of the sharing economy?
The sharing economy is usually defined by buyers (users) connecting with sellers (providers), but it is much broader than that. It extends to cover many direct access services, offered by way of websites and apps, which include the following:
- renting out all or part of your home (eg, Airbnb or Stayz);
- letting out a vehicle-parking space (eg, Parkhound and Spacer);
- ‘ride-sourcing’ services in exchange for a fare (eg, Uber, SheSafe, Shebah and GoCatch);
- providing services for delivery (eg, Deliveroo, Mad Paws); or
- offering a personal service (such as graphic design or creating websites).
If you earn income in any of these ways, the chances are that you are already part of the sharing economy. Here is a quick summary of the latest updates from a tax perspective and what you should keep in mind, but if you are in any doubt please contact us to find out more.
Register your income
When you provide a service for a fee then you need to declare it in a tax return. This is no different in the sharing economy and income tax and goods service tax (GST) are due under the usual circumstances.
GST or no GST?
The threshold over which you need to pay GST, even within the sharing economy, is still $75,000. If you are uncertain whether you will reach this threshold you can register for GST to be on the safe side. See further details below on the requirement to register for a GST if your business is connected to ride-sourcing.
Are you an enterprise?
If you are carrying on an enterprise you will need to apply for an Australian Business Number (ABN), lodge activity statements and, potentially, to register for goods service tax (GST) especially if you are providing a ride-sourcing service. This gets a little more complicated depending on the type of goods or services you provide as some will include GST.
Keep a trail
You may not end up with an obvious paper trail for your income-earning activities in the sharing economy, but you still need to keep records of what you earn. Being able to account for income and expenses by keeping up-to-date records is vital so that you can declare it in your tax return and claim any relevant deductions.
You will be able to claim deductions for expenses you incur while conducting your business as part of the sharing economy. Such deductions must be apportioned according to whether they relate wholly to work purposes or in part to work and partly for personal use.
Renting out part or all of your home
If you plan to rent out a part of or your entire home via a website (such as Airbnb, Stayz or similar) you still need to declare income on your tax return; deductions for expenses incurred apply as well.
How does GST apply?
Goods service tax (GST) does not apply on residential rent, but if you provide accommodation such as a hotel room, serviced apartment, a bed and breakfast, or even if you rent out a function room or office space (for commercial use), you will need to pay GST on income received.
How about CGT?
If you rent out a room in your home via the sharing economy (such as for Airbnb or similar) you may need to pay capital gains tax on a proportion of your income received when you sell your home or property. This applies even if the home you rent is your main residence; renting out even just a part of it can mean that you lose part of your CGT main residence exemption.
Whether you call it ride-sourcing, ride-sharing, ride-hailing, or some other name, if you provide an ongoing service to charge passengers a fare, or make a car/vehicle available for public hire, you need to register for an ABN and pay GST from day one. If your business is classed as a ride-sourcing enterprise you need to declare and pay GST on the full amount of every fare and keep records of income and expenses. You will be able to claim GST credits if you are an enterprise.
Avoid tax debt
Rather helpfully, the ATO provides tips on how to get ahead and avoid receiving a nasty tax bill. They suggest that if you think you will be close to the threshold to pay tax (over $18,200) you can make a pre-payment of tax; any pre-payment of tax made before any tax is due will stay on your account until such time as you, or your tax adviser, ask for a refund. You can also pay in instalments.
If you think you may be part of the sharing economy talk to us about how to avoid a surprise tax bill and pay the correct tax.