In Australia, all income earned from various sources, including the sharing economy, is subject to taxation. However, navigating the tax rules and obligations in the sharing economy can be complex and may lead to complications if not understood properly.
What is the sharing economy?
Are you earning income through online platforms like renting rooms on Airbnb, providing rides on Uber, or doing odd jobs on Airtasker? That means you’re working in the sharing economy.
The sharing economy is a socio-economic system centered around sharing resources, often facilitated by digital platforms like websites or apps, where users can access services for a fee. Common sharing economy activities that may be subject to income tax include:
- Being a Driver for popular ride-sharing/ride-sourcing services and obtaining fares for those services
- Renting out a room, whole house or a unit on a short-term basis
- Sharing assets (such as cars, parking spaces, storage space or personal belongings) through platforms such as Camplify, Car Next Door, Spacer, Toolmates or Quipmo.
- Creative or professional services provided by individuals through online platforms to fill a need of others (also known as the gig economy)
Tax implications of the sharing economy
The ATO treats sharing economy providers like any other business for tax purposes and they collect data from digital platforms to identify who’s earning money.
Here’s a breakdown of the tax implications for popular sharing economy services:
If you’ve ever used ride-sourcing services like Uber or Lyft, you’re familiar with this aspect of the sharing economy. Engaging in ride-sourcing services like Uber or Lyft necessitates adherence to GST and income tax obligations. All drivers must obtain an Australian business number (ABN) and register for GST. Key considerations include:
- GST is applicable from the start, irrespective of earnings.
- GST is levied on the total fare, and monthly or quarterly business activity statements (BAS) must be lodged.
- Proper issuance of tax invoices for fares above $82.50 is essential.
Regarding income tax, drivers need to include ride-sourcing income in their tax return and can claim deductions related to transporting passengers. It’s essential to keep meticulous records of all expenses and income related to your ride-sourcing activities.
Renting out residential property
Renting out part or all of your residential property through a digital platform can be a lucrative way to earn extra income. When doing so, you must declare the income earned in your tax return. Fortunately, you do not need to pay GST on the residential rent you earn. Keeping detailed records of both income and allowable expenses for tax deductions is vital.
Sharing assets (excluding Accommodation)
Sharing assets such as personal belongings, vehicles, storage spaces, or business equipment through digital platforms can generate taxable income. In this case, you need to report all income received in your tax return and claim eligible expenses as deductions. Keeping thorough records of both income and expenses is essential for accurate reporting.
If you offer services through a digital platform and receive fees for your time, labour, or skills, this income is also taxable. Some service examples include:
- Delivering goods
- Performing tasks
- Providing professional services.
You must report it in your tax return and can claim relevant expenses as deductions. Make sure to keep well-organised records to support your claims.
Sharing economy reporting system now law
Amendments to the tax administration legislation that recently received royal assent, will require operators in the sharing economy to report income earned by sellers on their marketplace. This is based on the ATO’s determination that income earned on these platforms is a high-risk for non-compliance with tax obligations.
The taxpayers required to comply with this reporting regime will be operators of:
• Taxi travel (including ride-sourcing/ridesharing) – from 1 July 2023
• Short-term accommodation – from 1 July 2023, and
• Asset sharing, food delivery, task-based services and all other supplies – from 1 July 2024.
From these dates, income you earn from these platforms will be reported directly to the ATO as assessable income to be include in your tax return.
Based on other data reporting systems, information which is generally included in the reports is your name, ABN, address, gross income and any GST you should be reporting. If this information is currently incorrect with these platforms you operate within, we suggest that you update your information promptly.
Consequences of non-compliance
Failure to declare income from sharing economy activities can lead to penalties, such as interest on tax bills or even potential criminal charges. As a gig economy worker, it’s crucial to ensure your tax return is correctly filed, and all income is accurately reported.
Seeking professional assistance
If navigating your tax return feels overwhelming, consider seeking professional assistance. Our KMT tax experts can provide valuable guidance, ensuring you fulfil your tax obligations while maximising legitimate deductions.
In conclusion, understanding the tax implications of the sharing economy is essential for Australians participating in these activities. By adhering to tax regulations, keeping meticulous records, and seeking professional advice if needed, you can navigate the sharing economy with confidence and peace of mind.
Contact us today to learn more about how we can support your business and ensure compliance with the latest tax updates from the ATO.
About our adviser: Chrisanthe Lekatis is renowned for her expertise in management accounting, virtual CFO services, and top-tier business advice. Chrisanthe’s passion lies in process improvement, as she combines her analytical prowess with adaptability to explore avenues for business sustainability. By deeply understanding her clients’ businesses and goals, Chrisanthe empowers management with tailored strategies for success, streamlining processes to achieve efficient and cost-effective outcomes. Please do not hesitate to reach out if you need assistance.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek tax advice from a qualified accountant at KMT Partners. Information is current at the date of issue and may change.