The Tax Office is setting its sights on the $500 million sharing economy, which consists of various platforms that let hundreds of thousands of Australian earn a bit of cash on the side by renting their spare rooms and parking spaces, lending their cars and driving people around the city.
In 2015, the ATO hit Uber with GST duties. And there are whispers that Airbnb will be hit next.
The sharing economy is turning out to be a significant player in the country’s economy. According to a study by Deloitte Access Economics, 53 per cent of Australian consumers had engaged in some type of sharing economy in 2015, and 63 per cent intended to do the same in the near term, as sharing rises in popularity as a form of business.
With an increasing number of players earning half a billion dollars annually, the ATO wants its share of the pie.
Declare every cent
Concealing income from the ATO is not only illegal, but also very risky in the digital age, according to CPA Australia Head of Policy Paul Drum. Now, the ATO has the capability to review transaction data with just a flip of a switch. Data matching can easily uncover how much each Uber driver or Airbnb host earned over a financial year based on the amount of commissions Uber or Airbnb received from each ride or stay.
There is no truth to the common belief that you don’t need to declare irregular or on-off transactions. Everything you earn from the first dollar is taxable income.
For Airbnb hosts, the only exemption from having to declare income would be if the gross income from all sources is less than the tax free threshold of $18,200.
Also, Airbnb hosts don’t need to be concerned about registering for GST, because residential lodgings are exempted. However, Uber drivers are required to pay GST on each dollar.
Homeowners who rent out a room may also not be aware that they risk missing out on their capital gains tax exemption if they choose to sell up in the future.
The exemption for Airbnb hosts varies on a pro rata basis, depending on the size of the space rented out and how long the bookings are. If you plan to be a host, you have to consider this in your financial modelling, and determine whether your side business is worth it in the end.
On the positive side, hosts are entitled to deductions for costs incurred the entire year if the home is listed on Airbnb the entire time – though they only received one or two bookings that year.
Here are some of the rules that sharing economy participants should follow:
1. Never conceal your income
Whether you earn extra cash or get your main income as an Airbnb host or Uber driver, you are required to declare these moneys on your tax return. Record your income and don’t cheat on your tax return. If you cheat, you may end up owing back taxes and be made to pay fines, penalties and interest charges.
2. Don’t squander your money
You may find it appealing to consider the extra cash you made through Uber or Airbnb as a perk toward your rent, paying off your car or even as a reason to indulge in shopping. But just as your earnings are increased by using Uber or Airbnb, so is the tax that you must pay. You might be in for a surprise at tax time if you fail to save some of your income. To minimise your risk, save at least 30 per cent, even 40 per cent, of what you earn from Uber driving or Airbnb rental during the first year.
3. Monitor your spending
If you have to purchase an item to operate your Uber or Airbnb, you are entitled to claim a part (or the whole) of that amount at tax time. What you need to remember is to save a record of your spending for you to file a claim.
4. Identify what you are entitled to claim
If you are leasing out a space or an entire apartment, you are entitled to claim expenses and deductions for that part of your house that was rented out, for the length of time it was occupied. These items include internet and phone bills, utility and council rates, and depreciation of furniture.
As for ridesharing drivers, they are entitled to work-related costs such as insurance and registration expenses, car maintenance, repairs and cleaning expenses, as well as mints, water and music streaming costs. If you are using Airbnb, you are entitled to claim other extras, but one critical item you should claim is your mortgage interest.
5. Be aware of your tax duties
You should know how the sharing economy affects your tax duties, else you could get lost in the process. One important thing to remember is to hire the services of a good accountant if you are not sure what your tax obligations are.
For tax advice, contact PJS Accountants. We offer expertise in managing your tax affairs with a full range of compliance, corporate and individual tax services, whether you are a large company, SME, family business or individual. Tax laws and requirements change constantly, potentially putting you or your businesses at risk. Chat with one of our expert advisers now and ensure you are meeting your tax obligations.