For anyone with space in their car or a room to let, share economy services such as Uber and Airbnb seem like a ticket to easy money. But the increasing interest of tax authorities and the rapidly evolving nature of the “share economy” itself mean it is a challenging area for accountants.
Sharing is turning out to be harder than many imagined.
The initial enthusiasm of many car and home owners to make a bit of extra cash by renting out a room or driving a stranger around is being blunted by the realisation that there is more involved than just putting an ad up on an app.
Many of those signing up for share services such as Uber, Airbnb and Airtasker find themselves having to take on the obligations of a business operator, including registering for the GST, submitting regular business activity statements (BAS), tracking incomings and outgoings and, in some cases, getting themselves an Australian Business Number.
Accountant John Liston says that for many this comes as a shock. A year ago, Liston and several colleagues from a suburban Melbourne accounting firm decided to dip their toe into the share economy by providing accounting services to Uber drivers.
Since then, he has seen many aspiring “sharers” baulk when they discover what’s involved, particularly those who have been on a payroll all their working lives.
“We find we are spending a lot of time helping people going from an employee mindset to that of a sole trader,” Liston says.
“For some it is a very, very steep learning curve.”
The idea of keeping a log book, lodging a quarterly BAS or setting aside a proportion of earnings to cover tax liabilities is more than a little off-putting for some.
Liston’s firm, Nixer, takes care of all the details involved in setting up a sole trader in the share economy, from getting an ABN and registering for GST to providing BAS statements and keeping track of deductions.
Even so, for those only interested in earning a little pocket money on the side, it can seem like a lot of trouble and expense.
“There are people who say, ‘What’s the point? By the time I pay my GST and Uber takes their fee, there’s not much left for me,” Liston says.
But for every person who decides against signing up, there are dozens more keen to take part in the share economy.
Uber and Airbnb are notoriously shy about revealing how many providers they have signed up, but it’s estimated Uber could have between 15,000 and 20,000 drivers in Australia, while more than 30,000 properties are listed on Airbnb in Sydney alone, and the number of listings have doubled each year.
Worldwide, Airbnb now averages more than 425,000 guests a night, according to PricewaterhouseCoopers (PwC), and in 2014 it had more than 155 million guest stays – nearly 22 per cent more than Hilton Worldwide.
For its part, Uber now operates in more than 440 cities worldwide , and was valued at US$50 billion last year.
PwC estimates that by 2025, sharing services in travel, cars, finance, staffing, music and video will generate US$335 billion a year in sales.
It is little wonder that share economy activity has caught the eye of revenue-hungry governments and tax authorities.
Business, just as we know it
For tax purposes, authorities in Australia, the US and the UK view income earned from sharing activities like any other source of earnings.
“The existing tax law applies equally whether a buyer and seller come together at a bricks-and-mortar business or via a mobile phone app or web site,” says Australian Taxation Office (ATO) deputy commissioner James O’Halloran.
People earning assessable income by providing sharing economy services are required to keep records of that income, and of any allowable deductions.
But, as with many things to do with the tax system, it’s not quite as straightforward as that. A taxpayer’s obligations differ depending on the type of service provided, and the amount earned.
The Uber question you probably never asked
The ATO ruled last year that anyone operating one or more sharing economy “enterprises” is required to register for GST if annual turnover exceeds A$75,000 (not including rental income).
The amount people receive for renting out all or part of their home through Airbnb or similar services is generally considered assessable income and must be declared on their income tax return. But the rent is GST-free, and they can claim deductions for associated expenses, though they may not be able to claim full exemption from capital gains tax if and when they sell.
Uber drivers face a slightly different set of requirements. The ATO ruled last year that ride-sourcing services such as Uber provided taxi travel as defined under GST law , which means that all Uber drivers must register for the indirect tax, regardless of their earnings.
In essence, they must register for GST, charge GST on the full fare, lodge regular business activity statements, and report the income in their tax returns.
Follow the data
In some ways, the rise of a digital-based share economy has made life easier for the taxman. Because most trade in the share economy involves credit cards, it leaves a data trail that can be tracked.
“The general move away from cash as the principal form of exchange – less than 50 per cent of transactions are now paid for in cash – and our ability to obtain data assist in this regard, as well as making it easier for us to provide information back to businesses, such as about their tax affairs,” says ATO assistant commissioner Matthew Bambrick.
Where things get tricky for tax authorities is in obtaining that data, particularly where the facilitating service is headquartered offshore.
The ATO, for instance, is currently embroiled in legal action with Uber Australia’s Netherlands-based parent company over access to its payments records.
The 20 per cent commission Uber charges its drivers is billed from the Netherlands in what ATO tax commissioner Chris Jordan told a recent Senate Committee hearing was a “classic sort of activity-here-but-bill-overseas type of thing. They hold information over there that we find very difficult to get”.
But the ATO has found a workaround by trawling through the data held by local banks, examining the bank accounts of those they think are Uber drivers and asking them to explain payments they have received. However, it is a long and arduous process.
To make their lives easier, tax authorities are looking to use global transparency measures such as the Common Reporting Standard endorsed by the G20 in 2014 and the OECD’s Base Erosion and Profit Shifting proposals to get their hands on the information they need.
There is speculation that tax authorities may eventually shift tax collection responsibilities from employers to app providers.
There are other challenges, too.
How do you report Uber earnings anyway?
Liston says much share economy work is intermittent – people work as an Uber driver for a couple of months to tide them over while they find a new job, or rent out a room for a few weeks to help save for a holiday – making it difficult for both accountants and the tax man to track income.
Then there is the vexed issue of whether “sharers” are really sole traders or are in fact more akin to employees.
This issue is yet to arise in Australia, but is already causing problems in the US, where Uber drivers in California and Massachusetts recently settled legal action against the platform over their employment status.
The nub of the drivers’ concerns is that Uber’s market dominance means that as individual contractors, they have little protection if it decides to slash prices, increase its commission or block them from its website.
But to make them employees could break Uber’s business model by lumping it with obligations like paying the minimum wage (which would undermine the price signal Uber uses to steer drivers to areas of greatest demand) and making superannuation contributions.
In some ways, Liston says, the share economy is “like the Wild West. It’s hard to know where it will all end up”.
But on one thing he is sure – the ATO has the power, resources and expertise to ensure people in the share economy will find it very difficult to dodge their tax obligations.
Stay up to date with one of Australia's most comprehensive taxation learning programs focused on demystifying the complexities of tax legislation, policy and practice.