Don’t forget your tax obligations
The sharing economy has become a disruptive global force of late, buoyed by high profile examples such as Uber and Airbnb. The concept typically involves a peer-to-peer transfer of goods or services, often using an online platform.
Providing a low-fee service, it’s easy to see why this is disrupting the business models of the hotel, taxi and retail industries to name a few. In NSW alone, the sharing economy is estimated to be worth $500 million a year to the state economy and many across the nation are able to generate a reasonable income sharing their owned goods.
Naturally, the ATO has put this on their agenda. Those who gain an income from sharing services will now need to declare this on their tax return as well as gain an ABN. Here’s what you need to know.
ATO targets the sharing economy
The Australian Tax Office (ATO) will be examining the affairs of people involved in the sharing economy such as Uber and Airbnb. Using sophisticated software and data-mining specialists, the ATO has new ways of ensuring that income earned in these activities complies with the tax laws.
Failure to declare income from these activities may result in penalties and interest being levied on any outstanding tax on these amounts.
Operators, be aware of your obligations
The ATO has stated that it will use new methodologies to target people in the sharing economy as many deriving income from these activities may not realise they have to declare amounts earned in their tax return. This is particularly the case for employees that are accustomed to receiving PAYG payment summaries from their employer, which operators such as Uber and Airbnb are not obliged to provide. As such, it is not uncommon for some or all of this income to go undeclared.
New methodologies introduced
The ATO’s super computer obtains over 600 million pieces of data from a range of third party sources, including major financial institutions. They’ve also assembled a team of data-mining experts to assist in the development of new methodologies that will ensure the right taxpayers have their tax information reviewed.
According to the ATO, many taxpayers became aware of the old system of selecting cases for review. Broadly, these methods used a system of thresholds for key indicators such as income and deductions. The ATO now believes that some taxpayers managed to “game” the system by artificially ensuring that their income and deductions were within the published thresholds.
The new methodologies use technology learnings and predictive analysis to create models which observe over time. As the models change with individual behaviour, it is not possible to artificially change key indicators to make sure they fall within certain thresholds. The aim being to put together a picture of what a person’s assessable income should be and to red flag anything that doesn’t look right for further investigation.
Obligations, they will vary depending on your situation
While the economy has changed significantly over the last few years, the ATO’s definition of income has not. People who make money from doing odd jobs like task sharing, ride-sourcing or renting out a room or house need to declare this income in their tax return. Of course, this applies if you run a business doing the same sort of thing.
Before venturing into operating in the share economy, consult your advisor to consider your obligations and entitlements depending on your situation. You need to register for GST and obtain an ABN from the first dollar you earn if you are providing ride-sharing services such as Uber, however this requirement does not apply for those that are providing other services. It is important to realise that the Tax Law does provide for choices in relation to some registration requirements.
Also, most people involved in the sharing economy will be entitled to claim deductions if they are declaring income. For instance, anyone earning money through accommodation sharing will be entitled to deductions for this activity, however it is a requirement to take into account what portion of the house is rented out and for how much of the year. The key to knowing what deductions may be claimed against income is keeping good records of all expenses incurred while providing the services.
What to do now
Anyone operating in the sharing economy and has derived any amount of income or is unsure of their obligations should contact Crowe Horwath for a review of your activities.