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The “Sharing Economy” – Know your tax obligations

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Our society is constantly advancing technologically, allowing us to earn income in ways other than the traditional “old-school” business models. As our methods of earning income evolve, our tax reporting obligations do not and new sources of income remain subject to the traditional tax implications.

Modern consumers have a taste for convenience and from this emerges the new trend of sharing based services. These sharing services allow individuals and groups to generate revenue from assets they control and connect with their consumers through an app or website. Some examples of popular sharing services include:

  • ●  renting out a room/house or unit for a short period of time e.g. Airbnb and Stayz;
  • ●  providing ‘ride-sourcing’ services for a fare e.g. Uber and GoCatch;
  • ●  providing personal services, including creative or professional services such as graphic design, websites or odd jobs such as deliveries and furniture assembly e.g. Deliveroo, Airtasker and Mad Paws;
  • ●  renting out a car parking space e.g. Parkhound and Spacer; or
  • ●  supplying or renting out equipment such as tools, musical instruments and sports equipment.

While these are all great sources of income, it is essential for you to understand these sharing services could be affecting your tax obligation.

If you provide goods or services for payment through the sharing economy, the payments you receive are assessable income. This means:

  • a) you must declare the income in your tax return; and
  • b) you can claim deductions for associated expenses.

Your obligations

The Australian Tax Office have recently updated their website in an effort to specify your obligations as a taxpayer. There are different obligations associated with different sharing services.

Renting out part or all of your home
The payments you receive for this service is deemed assessable income which means you must declare it in your tax return. Once you have declared it, this means you can claim associated expenses for the year as rental income.

When it comes to selling the residence, you may need to pay capital gains tax. Even though you may have qualified for the main residence exception, renting out all or part of your house usually means losing part of the CGT main residence exemption.

Providing ride-sourcing services
You can also claim related expenses for ride-sharing services once you have declared your income. By providing a ride sharing service, such as Uber, the ATO views you as self-employed which allows you access to all of the small business concessions, including the $20,000 instant asset write-off for capital assets. This will be handy for drivers buying second hand cars.

GST

You may also need 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 which is currently $75,000 per annum.

However, the threshold does not apply to the supply of “taxi travel” as part of their enterprise who need to be registered for GST regardless of their level of turnover. A burning question was whether Uber and other ride sharing services are considered as providing “taxi travel”. The ATO has said it does and all Uber drivers are required to register for GST.

After you have registered for GST, you need to work out whether your sales are taxable and then issue tax invoices for those that are in fact taxable. You will be able to claim GST credits for GST included in the price of your business purchases. You will need to account for GST and lodge activity statements.

Providing other goods or services

As a minimum, for any income received and deemed assessable, it must be declared in your tax return. Once this is complete, you can apportion related expenses and claim those. You will need to keep records for your accountant to verify the expenses.

Conclusion

Although your method of earning an income may be non-traditional, your tax responsibilities remain the same.

Don’t let a lack of understanding make you liable for interest and penalties from the ATO.

Madison Marcus offers tax advice and services and can assist you in structuring your “new economy” business in a tax effective way that caters for your needs now and into the future as part of an overall planning strategy.

rolf-koops-partner-madison-marcus-law-firm
Rolf Koops, Partner -Tax
rolf.koops@madisonmarcus.co
+61 2 9762 0480

Madison Marcus Law Firm produced this article. It is intended to provide general information in summary form on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.

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