The phrase “sharing economy” is used by the ATO to describe economic activity that connects buyers (users) to sellers (providers) of goods and services through an online platform (an app or a website). Such online platforms are usually hosted by a facilitator who is neither the provider nor the consumer of those goods and services. Popular sharing economy services include:
- Renting out a room or a whole house or unit on a short-term basis (e.g., Airbnb, Stayz)
- Providing “ride-sourcing” services for a fare (considered to be taxi travel) such as Uber and GoCatch
- Providing personal services for a fee, including creative or professional services such as graphic design and creating websites, or odd jobs such as deliveries and furniture assembly, and even pet sitting or boarding (e.g., Airtasker, Mad Paws)
- Renting out a car parking space (e.g., Parkhound, Park Monkey, Spacer).
These 4 categories of participation in the sharing economy are of most relevance to individual taxpayers.
A similar model of the sharing economy is where, instead of a cash payment, participants may receive a form of credits to use for a future consumption, or it may be an exchange of mutually needed services. Yet another model of the sharing economy is where goods and services are provided for free, that is, on a voluntary basis for no consideration.
Sharing economy data matching programs
The Australian Taxation Office (ATO), which currently collects data from ride-sourcing platforms and sharing economy accommodation platforms, announced in November 2020 through a notice of a data-matching program in the Gazette that it will acquire data on Australian sales made through online selling platforms for 2018–19 through to 2022–23 financial years. The data collected will be electronically matched with ATO data holdings to identify non-compliance with registration, lodgment, reporting and payment obligations under taxation laws.
The ride-sourcing data matching program objectives are to:
- Promote voluntary compliance and increase community confidence in the integrity of the tax and superannuation systems.
- Assist with profiling to provide compliance staff with a holistic view of a taxpayer's income.
- Identify and educate individuals who may be failing to meet their registration or lodgment obligations and assist them to comply.
- Gain insights from the data that may help develop and implement engagement strategies to improve voluntary compliance and may include educational or compliance activities as appropriate.
- Obtain intelligence to increase the ATO’s understanding of the behaviours and compliance profiles of individuals and businesses that provide ride-sourcing services.
- Ensure compliance with registration, lodgment, correct reporting and payment of tax and superannuation obligations.
The ride-sourcing data-matching program allows the ATO to identify and address several taxation risks, including:
- Incorrect reporting of income in income tax returns and activity statements.
- Failure to meet registration or lodgment obligations in the tax and superannuation system.
Insights from the program inform treatment strategies to improve voluntary compliance through education on taxation obligations. The ATO says the data in this program will be used to identify and inform ride-sourcing providers (drivers) of their tax obligations as part of information and education campaigns. The data may also be used as part of the methodologies by which it selects taxpayers for compliance activities. The ATO says it does not use data from ride-sourcing facilitators to initiate automated action or activities.
The ATO has a particular focus on all aspects of the sharing economy. It believes that some people using sharing economy platforms are failing to report their income, either deliberately or because they assume their level of activity constitutes a hobby and does not require reporting. As for sharing economy accommodation, the ATO’s focus is to ensure that people who are renting out:
- A room in their house, or
- Their home while they are away, or
- An investment property
Through web- or app-based platforms in the sharing economy understand their obligations.
In 2016 there were approximately 2 million individual taxpayers who reported rental income of $42 billion and/or claimed rental expenses totalling $45 billion.
There is an increase in people renting out their homes, apartments, units or rooms via platform sharing sites to generate income. The ATO says that an increased use of these sites means there is an increased risk of people not understanding their tax obligations when it comes to renting out part or all of their property.
The ATO has a particular focus on how it can improve its information to assist individuals to understand the rules around short-term rental income and will expand its use of third-party data to identify omitted rental income and over claimed deductions.
It also seeks to identify taxpayers who use sharing economy rental platforms to disguise their property as being genuinely available for rent by listing the property but not responding to enquiries.
The ATO will match the data provided by the rental platforms against ATO records to identify individuals who rent property on a short-term basis but may not be meeting their registration, reporting, lodgment and/or payment obligations.
Tax issues raised by sharing economy
The sharing economy raises a range of tax issues depending on the type of transaction in question but none of those issues are particularly new or controversial. The new aspect is the scale of non-business taxpayers actually or potentially converting themselves into business taxpayers and having to confront tax issues and levels of administration that may be unexpected.
Although the sharing economy business model differs from that of a traditional service provider, the ATO has indicated that it can only apply the tax law as it currently stands. This means that service providers within the sharing economy have the same tax obligations as traditional service providers.
Broadly, the outcomes are as follows:
Payment for services provided is assessable income for income tax purposes, unless there are reasonable grounds to consider the activity of providing the services as a hobby or recreational pursuit.
Former ATO guidelines on the sharing economy entitled The sharing economy and tax do not provide a specific example of a level of activity that would not be regarded as a business, although it was stated that if a taxpayer did jobs on an infrequent basis, “for example one or two small paying jobs per month”, the taxpayer would not have the scale or permanency of activity that would indicate a business. From a practical point of view, the example given in the former guidelines indicated that almost all sharing economy activities above the de minimus level indicated will be regarded by the Commissioner as a business.
In particular, the provision of services to strangers at arm’s length is said to give the activity a commercial character, as does the use of a sharing economy website. Consequently, unless the taxpayer provides personal services through a sharing economy platform on a very small scale, they will be required to include the amounts paid to them for the services in assessable income and will be entitled to deduct expenses incurred in carrying on the business.
Work-related expenses and deductions, and expenses relating to the use of the sharing economy platform would also be deductible under s 8-1 of ITAA 1997. In the case of renting out a room or a whole house or unit on a short-term basis, The sharing economy and tax did not contemplate a minimum level of activity in the way that they did for the provision of personal services. While it is possible that a single or small number of short-term rental arrangements might be considered de minimus, it is difficult to see how a rental arrangement might be dismissed as a hobby or as recreational. As a general rule, income from renting out a room or whole house or unit on a short-term basis will be included in assessable income.
Consequently, deductions will also be available under s 8-1 of ITAA 1997 for expenses ordinarily incurred related to rental properties, such as:
- Fees or commission charged by the facilitator or administrator
- Council rates
- Interest on a loan for the property
- Electricity and gas
- Property insurance, and
- Cleaning and maintenance costs (products used or hiring a commercial cleaner).
If the property is the taxpayer’s own residence and the rental arrangements are short-term, apportionment of those expenses will be required. The sharing economy and tax included detailed instructions on how to apportion deductions for expenses, based on:
- The proportion of the year the house or property is rented out
- The portion of the property rented out (eg a room or the whole property), and
- Whether the home or part of the property is used for personal purposes when it is not rented out.
If an individual is carrying on an enterprise and their annual threshold is above $75,000, they must register for GST. If an individual is carrying on an enterprise of providing ride-sourcing services, under the GST law, they must be registered for GST and must account for GST on the full amount of every fare regardless of how much is earned. They can also claim the business proportion of input tax credits. The GST registration threshold does not apply to ride-sourcing services because they are a supply, for GST purposes, of “taxi travel”.
The ATO also considers that the individual is running a small business as a sole trader, so they must declare all the income earned from providing ride-sourcing services and can claim the expenses related to providing the services. Expenses related to operating the car must be apportioned so that any claim for deductions only reflects expenses incurred while the vehicle is being used to provide a ride-sourcing service. Those already registered for GST must report the income on their GST return.
The ATO issued a notice in the Gazette, Commissioner of Taxation - Notice of a data-matching program, in March 2020 advising of a data-matching program that will collect ride-sourcing data during the 2019–20 to 2021–22 income years. The ATO will then match the identification and transaction details collected against ATO data to assess whether individuals who provide ride-sourcing services are meeting their tax and superannuation obligations.
In the sharing economy category of renting out a room or a whole house or a unit on a short-term basis, the GST position will in most cases be quite different to the issues already identified that relate to the provision of personal services for a fee, renting out a car space and the provision of “ride sourcing” services for a fare because GST does not apply to residential rent. The supply of residential premises by way of lease, hire or licence is an input taxed supply. Accordingly, no GST is payable with respect to rent if the property is the taxpayer’s residence or a private residential investment property. However, the provision of accommodation in commercial residential premises (eg a hotel, serviced apartment, or bed and breakfast) or renting out commercial spaces like a function room or office space is generally taxable.
There are some sharing economy rental online platforms that allow taxpayers to make commercial premises, such as office space, available for rent. The GST exclusion for residential rent will not apply to rent paid for these types of properties. If an individual is carrying on an enterprise and their annual threshold is above $75,000, they must register for GST.
CGT main residence exemption
A consequence of renting out a room or a whole house or a unit on a short-term basis or renting out a car parking space is that it is likely that part of the capital gains tax (CGT) exemption for a main residence will be lost. A capital gain or loss from a dwelling is disregarded if the taxpayer is an individual, the dwelling was the taxpayer’s main residence throughout the ownership period and the interest did not pass to the taxpayer as a beneficiary in, or as the trustee of, the estate of a deceased person.
If the residence is used for the purpose of producing assessable income during the ownership period, the taxpayer will lose a proportion of the exemption based on the proportion of the property made available for rent and the length of time it was rented. Under s 118-145 of ITAA 1997, the full CGT main residence exemption may still be available if the taxpayer moves out of the main residence to live in another home for a period of time. If the property is used for income-producing purposes, the maximum period the dwelling can be treated as the taxpayer’s main residence is 6 years. However, the key issue in this provision extending the main residence exemption is that there must be a cessation of the property being the taxpayer’s main residence. In the case where a taxpayer vacates their home for a short time to stay with friends or family in order to accommodate guests or rents out a car parking space, this is unlikely to occur.
The participants in the sharing economy, having to declare income and claim associated deductions, have similar record-keeping obligations to other taxpayers. They need to keep records of all related income and expenses, including statements from digital platforms showing their income and receipts of any expenses they want to claim deductions for. Record keeping for motor vehicle expenses depends on the method used to calculate a claim. Generally, these records must be kept for 5 years from when the records were prepared or obtained, or the transactions or acts those records relate to were completed, whichever is later.
An additional issue relevant to the sharing economy is whether an individual service provider is an independent contractor or could be regarded as an employee of the facilitators. Employers are obliged to withhold PAYG and to pay superannuation guarantee for employees. The terms of the engagement and the various facts and circumstances become relevant to determine the relationship between the individual and facilitator.
Checklist: Considerations if you are involved in the sharing economy
If you are involved in the sharing economy, you need to consider:
- if you are carrying on an enterprise:
- if you need an ABN
- if you need to register for GST and lodge activity statements
- If the price of the goods or services you provide includes GST
- If and when you need to provide tax invoices for your sales
- If you need to declare your income in your income tax return
- What GST credits and income tax deductions you can claim for your expenses related to earning your income
- How all your sharing economy activities added together impact your income tax and GST obligations
Explore further — CCH iKnow Sharing economy topic guide.