The concept of a “sharing economy” has been around for long enough now to have had a very real impact on how our financial transactions are conducted. Of course there is a lot more to it than that — there always is — but as far as the treatment of the taxation element of these transactions, the ATO has found it necessary to provide guidance. Tax and the sharing economy
By now, most people will have realised that the “sharing” part of the concept does not refer to an absence of any monetary exchange, but rather to the use and access of shared physical or human resources or assets. The means of these transactions is usually conducted online. The Harvard Business Review and many others have argued that a more accurate term that could or should have been adopted would be “access economy”.
For its part, the ATO states that it views the sharing economy as a system that “connects buyers (users) and sellers (providers) through a facilitator who usually operates an app or a website”.
It identifies some popular sharing economy services in Australia as those that include:
- renting out a room or a whole house or unit for a short-time basis
- providing taxi travel services (“ride-sourcing”) for a fare
- providing personal services, such as creative or professional services like graphic design, creating websites, or odd jobs like deliveries and furniture assembly
- renting out a car parking space.
The ATO says taxpayers who are involved with the sharing economy may need to consider:
- if they are carrying on an enterprise
- if they need an ABN
- if they need to register for GST and lodge activity statements
- if the price of the goods or services provided includes GST
- if and when they need to provide tax invoices for sales
- if they need to declare this income in an income tax return
- what GST credits and income tax deductions can be claimed for expenses related to earning income
- how all their sharing economy activities added together affect their GST and income tax obligations.
For example, the ATO says that if a taxpayer carries on an enterprise of providing ride-sourcing services, under the GST law they need an ABN, need to be registered for GST, and are required to account for GST on the full amount of every fare regardless of how much they earn. They can also claim the business proportion of your input tax credits.
The ATO says the GST registration threshold does not apply to ride-sourcing services. It also considers that providing such a service would also mean the taxpayer is running a small business as a sole trader, so they’ll need to declare all the income earned from providing ride-sourcing services and can claim the expenses related to providing the services.
If a taxpayer is selling goods or performing a service as a spare-time activity or pastime that they pursue for pleasure or recreation, then the ATO states that it will view these activities as partaking in a hobby that does not have tax or reporting obligations.
There are, however, different tax obligations that can arise, depending on what goods or services a taxpayer is providing (the links below will take you to an ATO page for more guidance). Common sharing economy services include:
- renting out a room or all of your house or unit
- providing goods or services
- renting out a carparking space
- providing ride-sourcing services.
GST and multiple enterprises
One of the more common sharing economy services is ride-sourcing, however the obligation to register for GST (no matter what the annual turnover is) can have an impact of subsequent tax obligations.
For example, the ATO says if a taxpayer is registered for GST because they are already carrying on an enterprise, they must account for GST on all the sharing economy goods and services provided that are subject to GST. “For example, if you have an enterprise that provides ride-sourcing services, and have to get an ABN and register for GST regardless of your turnover, you would also have to account for GST on a car park you rented out.”
If you are providing goods and services across multiple websites or apps, or through other enterprises outside of the sharing economy, the ATO states that this would require an ABN and registration for GST when total turnover for all activities together is, or is expected to be, $75,000 or more per year. However when working out turnover, the ATO says taxpayers can exclude income from renting out a room or a whole house or residential unit.
Regardless of how much a taxpayer earns, or the reasons for them providing the goods or service, the ATO says they should keep records of income and expenses so they can keep track of their activities and assist with tax obligations when they arise. “You may intend to provide goods or services as a hobby or recreational pursuit, but your level of activity over the whole year may mean that you are in fact running a business and need to comply with income tax and GST obligations.”
Tax & Super Australia is hosting a webinar:
“The New Sharing Economy – What Are The Practical Tax Issues”
Scheduled for February 22. Find out more and register here.