The share economy has opened up opportunities for people to earn additional income with little capital investment required. Examples include working as an Uber driver – using the car you already own – or letting out your home through Airbnb for the occasional period of time.
The income is subject to income tax, but it seems not everyone participating in the share economy is declaring that income on their tax returns.
Black Economy Taskforce
The Black Economy Taskforce is part of the federal Treasury, and was established to develop policy responses to combat the black economy. Today, the black economy means much more than undisclosed cash income, and includes activities such as identify theft, illegal phoenixing and GST fraud.
Whilst the vast majority of people do the right thing, those who don’t cause harm to others, such as concentrating a heavier tax burden on everybody else, and undercutting honest business owners.
New reporting obligation
Much has changed over time such that the above issues cannot be tackled by traditional tax enforcement measures alone. This latest measure, aimed squarely at the share economy, is to compel “electronic distribution platform” (EDP) operators such as Uber, Airbnb and Deliveroo to report information about their platform users to the ATO.
Draft legislation has been released and, if enacted, will be the latest addition to a number of existing payment reporting systems.
It is proposed for the reporting regime to apply as follows:
- From 1 July 2022 for taxi and ride-sourcing travel, and short-term accommodation.
- From 1 July 2023 for asset sharing, food delivery, tasking-based services and other services.
The nature of the share economy is such that it does not use cash, and so records of earnings, bank account deposits, etc are simply there to be seen. However, it is costly and cumbersome to administer tax compliance by the traditional way of investigating individual taxpayers. Instead, it is far more effective to receive standardised reported data from EDP operators, and then data-match to disclosures on tax returns. This efficiently identifies discrepancies, which can then be investigated further.
The reported information will include an individual’s name, ABN and total payments received. EDP operators will be required to report the data to the ATO annually, although the ATO has the power to require more frequent reporting.
Beware: Share economy double-edged sword
In deciding whether it is worthwhile becoming a provider in the share economy, there are some things to consider beyond how much money you might earn. For example, with ride-sourcing, a portion of costs relating to your existing car that you would incur anyway would now be deductible. These include insurance, registration and of course depreciation. (Appropriate substantiation must be maintained.) However, a portion of any gain on sale would be taxable.
Whilst the above might work out okay overall for a car, contrast it with occasionally letting out your home through Airbnb. Your home is generally exempt from capital gains tax (CGT). However, because you’ve now used it to earn income, your home is no longer fully exempt, and you will have a partial CGT liability when you sell it. The key point here is that it would be prudent to estimate what that future CGT cost might be, and weigh it up against the income return to decide whether it’s worth it.
As an aside, there is a rule that allows you to continue treating your home as fully exempt if you no longer live there but still own it. There is a misperception by some that this rule applies when letting out your home for short periods through Airbnb. Unfortunately, it doesn’t. Occasional short-term absences (such as while travelling) means you never stopped living there. That’s why that rule doesn’t apply.
Next can help
The share economy, along with other digital-based business models, is still emerging. However, participants must still manage their tax obligations just like in any other sector. Talk to your trusted Nexia Advisor about we can help you manage any of your tax obligations.
Article by David Montani2021