There are a number of tax implications for Drivers, and these should be taken seriously! In 2017, the ATO issued a Media Release stating that it is collecting names of Drivers directly from Uber (and other sharing economy Facilitators such as Airbnb) and will cross-check these names to the Driver’s tax returns and Business Activity Statements to ensure that income tax and GST obligations have been met. Therefore, there is a high likelihood that non-compliant Drivers will be detected by the ATO.
Income from a Driver’s ride-sourcing activities must be declared as assessable income in a tax return irrespective of the amount they earn, and irrespective of whether they have another job. The amount to be declared is the full fare (including or “grossed-up” by the Uber Fee) less GST. The full fare amount must be declared in a Driver’s personal tax return (or in an entity’s return if they are operating through a company, trust etc.). If the driver is operating as an individual (not through an entity), in their personal tax return they must select the code for their main occupation. If their main occupation is ride-sourcing, they should select the Business industry code 46231 (taxi service operation).
EXAMPLE – FARE BREAKDOWN
Simon is a full-time school teacher who, to earn extra income, signed up as a Driver with Uber in April 2017. On one of his rides, the Rider was charged $110. The Uber Fee was $27.50, and ultimately Simon received $82.50. (This figure is indicative only. The Uber Fee will vary depending on a range of factors).
In this scenario, Simon must declare $100 as assessable income in his tax return (being the full fare of $110, less GST of $10).
Unlike salary and wages, because a Driver’s ride-sourcing income has no tax withheld when paid to them, a Driver may end up with a tax bill at year-end. To avoid this, the Driver can make voluntary tax pre-payments to the ATO. Alternatively, they can voluntarily enter into the PAYG instalments system which allows them to make provision for an anticipated tax liability at year-end by paying small amounts of tax during the year to offset tax payable on their ridesouring income.
Under general GST law, you are only required to register for GST where you are carrying on an enterprise and your annual turnover is $75,000 or more. However, where your enterprise involves providing ‘taxi travel’ you must register for GST irrespective of the level of turnover. The Government chose back in 2000 when the GST system was introduced to apply compulsory registration to taxi drivers for several reasons including:
• To avoid the confusion created if some taxis did not charge GST, but others did
• Avoiding the added problem that would arise if a passenger was using a taxi for a business trip (creditable acquisition). In such a case, the passenger would want to be able to claim GST credits for the GST component of all fares
• Meter rates are set by each State authority. After 1 July 2000, all meters were adjusted to reflect the GST. If some drivers were registered but others were not, all would be collecting the higher rate. This would disadvantage drivers who had to be registered if the standard $75,000 turnover registration threshold applied.
The GST legislation defines ‘taxi travel’ as travel involving transporting passengers by taxi or limousine for fares. The ATO adopts a broad interpretation of ‘taxi’ to include cars made available for public hire to transport passengers in return for a fare (but not including trucks and bike courier services). Thus, Uber drivers are caught by this interpretation. Although Uber appealed this ATO interpretation to the Federal Court, in February 2017 the Court unanimously ruled in the ATO’s favour that making your car available for ride-sourcing constitutes taxi travel. Uber are not appealing against this decision, thus this is settled law. Therefore, Drivers must register for GST if signing up with Uber, irrespective of the level of turnover. From a Driver’s perspective, they are financially better off registering for GST anyway, as many of the costs they incur while driving for Uber will attract GST (see earlier list of expenses). Without a GST registration, there is no ability to claim back the GST component of these expenses. Having registered for GST, Drivers:
• Must pay to the ATO GST on the full fare ($10 in the earlier example), and
• Can claim GST on business expenses (see earlier list), taking into account any private use of the vehicle.
Drivers must register in order to properly comply with their tax obligations such as remitting the GST component of the fare. In the event that a Driver does not register for GST and the ATO later detect this, it will be the Driver (not Uber) that will be liable for the unpaid GST (to the ATO) on all fares. Additionally, interest and penalties for failing to pay the GST on time will likely be imposed. Therefore, irrespective of the fact that Uber do not compel Drivers to register for an ABN and GST, Drivers should do so as they are the taxpayers who will be left exposed in the event of nonpayment of GST on fares. In this sense, the GST risk and ultimate liability sits with the Driver.
Expenses (less GST) incurred by Drivers in operating their ride-souring activities are deductible. As per the following table, not all expenses will be deductible; while expenses that are deductible may need to be reduced/apportioned to take account of any private use of the vehicle:
Returning to the earlier example, Simon can claim a $25 deduction for the Uber Fee (being $27.50 less $2.50 GST).
In instances where a vehicle is being claimed in the Driver’s personal tax return, the costs will be claimed using either of the following method:
1. Cents per Kilometre Method
Whereby you claim a set number of cents per kilometre travelled (currently 66 cents). The advantage of this method is very little record keeping is required. You only need to be able explain how you arrived at your calculation – you do not need any documentary evidence in the way of recepts or log books etc. Even where you travel more than 5,000 kilometres, you may still elect to use this method (and save the hassle on the record-keeping requirements that are required under the logbook method) by capping your claim at 5,000 kilometres. In summary, this method can be appealing to Drivers who:
o Have travelled less than 5,000 business kilometres o Have older vehicles (therefore depreciation and interest costs are low) o Have not kept, or do not wish to keep, records of kilometres travelled. This method incorporates all car expenses including petrol, servicing, depreciation, etc. You can make no further car expense claim.
2. Logbook Method
Under this method, your claim is based on the business use percentage of each car expense, which is determined by a logbook that must have been kept for a minimum 12-week period.
This logbook must be updated every 5 years or where there has been a change to the percentage of business use (by more than 10%). To ease the record-keeping burden, we would encourage the download of one of the innumerable logbook ‘apps’ on the market, either from the App Store or Google Play as the case may be. In summary, under this method you can claim all expenses that relate to the operation of the car, at your percentage of business use, as established from your logbook. This method generally gives the best result where the vehicle has substantial business use.
Drivers can calculate their claim and determine which method provides the largest deduction, by using the ATO’s Work-related car expenses calculator on its website.
If you have any other questions, please feel free to call us on 0424 365 365 or email us on email@example.com