The Sharing Economy & The ATO: What you need to know
Uber and AirBNB have exploded in popularity, but just how does the ATO view your participation in the shared economy?
Irrespective of how you earn money, the basics of tax apply. You may be earning income from multiple sources or using different platforms to generate income, however the fundamental tax issues remain the same. And if you're earning money by participating in the sharing economy, then there are some things that the ATO wants to you know.
Whether it's sharing a room, offering a share-ride service with your car or other types of 'sharing' activity, the ATO has the capacity to data match revenues from services such as Uber and AirBNB against revenues flowing to financial institutions.
If you have a spare room or you want to rent your house out to guests, then a service like AirBNB can be a great way to earn money from an existing asset. The tax treatment of what you earn from these services is the same as any other residential rental property arrangement.
What that means is this: you need to include the rental income as part of your tax return. How can this impact you? Well, if you you and your partner jointly own a property and rent it out through AirBNB, any income you earn must be declared on your income tax return in the same proportion as the share of the property you own.
As a host, you can also claim tax deductions for expenses related to the rental, such as the interest on your home loan, professional cleaning, fees charged by the platform, council rates and insurance. However, these deductions must be proportionate to the income you earn and how long you rent it out for. For example, if you rent your home out for two months of the year, then you can only claim a sixth of the expenses as a deduction. And that scales according to how much of the house you rented out.
GST does not generally apply to residential rental income.
One thing that a lot of property owners forget – or are unaware of – is that renting out your home may have a direct impact on your tax-free main residence exemption for capital gains tax purposes.
Generally, your home is exempt from CGT when you sell it, unless you use your home to earn assessable income. In that case, you might only qualify for a partial exemption when you sell unless special conditions apply.
In reality, if you are renting out part of your home while still in the property, it's unlikely that any gain you make 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.
Canny investors are generating income from renting out residential investment properties exclusively on sharing services, rather than the more traditional, longer-term arrangements. It's rental income that can be higher for short-term accommodation and the host has capability to increase pricing easily for peak rental periods. It is a practice that is taking off on a global scale.
But if you're considering using a portfolio of properties in this way, it's essential that you get good tax advice. It's a complex area for tax and relatively easy to land on the wrong side of tax law. For example, if the ATO decides that you're providing commercial rental accommodation, they will treat your activities in the same way as they treat hotels and motels. What could that look like? Well, the rent you collect may trigger GST (though you may also be able to claim back some GST credits on expenses).
Broadly, accommodation falling into this category would have multiple occupancies such as a block of apartments, central management of the properties, and provide services to the guests beyond the accommodation such as breakfast or room servicing.
Before becoming a host, as a minimum, it's important to understand the tax implications of your arrangement, check if there are council restrictions, and ensure that you have the right insurance in place.
There is nothing that prevents an SMSF from providing host services assuming that the investment strategy of the fund allows for the risks associated to this style of rental and the liquidity issues have been thought through by the trustees.
In general, the rules apply the same way as other residential rental property arrangements, in particular no one associated to the fund including the members, their relatives, or their associates can use the property. And, because the fund is not using a commercial property agent, for audit purposes, it will be essential to keep excellent paperwork to prove how, when, and to whom the property was rented. Also check the insurance is appropriate to protect the fund's assets.
If you're providing ride-sourcing services, then you'll need to register for GST regardless of how much you earn from driving because the ATO views these services as a 'taxi' service and the usual $75,000 threshold for registration and remitting GST does not apply.
The ATO has made its stance clear: Ride-source drivers provide taxi services. Its grace period to comply with that stance ended on 1 August 2016, so all ride-source drivers should 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.
If you drive infrequently for a bit of cash on the side, you also need to declare any money you earn on your income tax return. But, you can also claim any expenses you paid for providing ride-sharing services if you own or lease the car you use for ride-sourcing (i.e., it's owned or leased in your name).
If you drive less than 5,000 kilometres in the financial year in the course of earning income, you could choose to simply claim a 66 cent per km deduction for the kilometres you travel while providing ride-source services. Or, you can keep a log-book for 12 weeks to work out your deductions that way.
And, because you are registered for GST, you can also claim GST credits on expenses you incur in providing ride-source services. Just be aware that if the car is not used exclusively for ride-sourcing, you can only claim deductions and GST credits for the portion of expenses that apply to providing ride-source services – not everything you spend. Simply turning on the app is not enough – you need to be actually providing the service to claim a deduction.
If you are in the business of providing ride-sharing services – for example ride-sourcing is all you do and you have set up a business structure to support it, like any other business, you have access to a broader range of deductions. This might include access to a broad range of small business concessions including an immediate tax deduction on assets costing up to $20,000 (GST excl.). However, you could also be subject to some strict rules which apply to losses made from business activities.
There are a wide range of other services that could potentially be provided through the sharing economy. This could include using your ute or other commercial vehicle to provide removal or delivery services.
In each case, it is important to work through the basic rules to determine whether the activities amount to a business, the income and deductions that need to be declared on your tax return, the records that need to be kept in order to support the claims that are being made, as well as the ABN and GST issues that go along with providing services.
This is an area that is clearly on the ATO's radar so it is important to ensure that all relevant tax obligations are identified and are being managed appropriately.
Are you participating in the sharing economy? Contact us on 02 9957 4033 to find out more about your tax obligations.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.