The Sharing Economy and Tax
What is sharing economy?
Sharing economy is an economic model in which individuals are able to borrow or rent assets owned by someone else. These include things like renting out a room or a whole house, providing taxi services, providing personal services, such as creative and professional services or renting out a car space.
Airbnb and Uber are examples of the growing popularity of economy sharing.
What are the tax implications of becoming part of the AirBnB sharing economy?
Air BnB hosts can also claim tax deductions for expenses associated to the rental, such as the interest on your home loan, professional cleaning, fees charged by the facilitator, council rates, insurance, etc. But, these deductions need to be in proportion to how much and how long you rent your home out. For example, if you rent your home for two months of the financial year, then you can only claim up to 1/6th of expenses such as interest on your home loan as a deduction. This would need to be further reduced if you only rented out a specific portion of the home.’
Be aware that renting out your home may have a direct impact on your tax-free main residence exemption for capital gains tax (CGT) purposes. In general, your home is exempt from CGT when you sell it. However, if you use your home to earn assessable income, then you might only qualify for a partial exemption on the sale unless special concessions apply. If you are renting out part of your home while still living in the property, then it is unlikely that any gain you make on your home will be fully CGT-free. You might also need to obtain a valuation of your home at the time it was first used to generate rental income.
What are the tax implications of Uber and other ride sharing services?
The income you earn or have earned from your ride-sourcing business is assessable income and must be reported in your income tax return.
The ATO regards ride-sourcing services as a taxi service, which means that if you are providing these services, you need to register for GST regardless of how much you earn from driving.
Normally, taxpayers need to reach the $75,000 threshold before they are forced to register and remit GST but in the case of ‘taxi services’ this threshold does not apply. The ATO is definitive in its stance that ride-source drivers provide taxi services. The grace period for drivers to comply with the ATO’s strict stance expired on 1 August 2016 so all ride-source drivers should now be registered for GST.
If you already have an individual ABN, for example you might do IT contracting, then you can use the same ABN for ride-source services and register for GST using this ABN.
Expenses you incur in running the ride-sourcing business will be tax deductible. This may include expenses that relate to holding, maintaining or operating any assets used to provide the ride-sourcing services.
If you incur an expense that is both related to your business and is private or domestic in nature, you can only claim a deduction for the work-related proportion of the expense. Any expense claimed must not be private or domestic in nature.
For example, if you buy a meal to eat while on a break from providing ride-sourcing services it is not a business deduction; it is a private expense and cannot be claimed as an expense. If you use a mobile phone for personal use as well as to be notified of ride-sourcing work, you will be able to claim a proportion of the expenses for the mobile phone as a deduction against your business income, but only the amount that relates to its business use.