Uber is a technology-based business. It matches drivers with passengers. The drivers are paid for driving services and generally is lesser than taxi fee.
In Australia, some states (such as Victoria and Queensland) have not passed laws for Uber drivers. This makes the business is actually illegal to operate in those states (pending the outcome of future litigation or changes to the relevant state/territory law).
One of the ATO audit targets for this year is the ‘sharing economy’ businesses. Two main players in this business are Airbnb (accommodation) and Uber. This article will focus on tax implication on Uber business. For Airbnb business please click this link.
According to Roy Morgan recent research, the Uber’s market share continues to grow. 5.1% of Australian aged 14 and over reportedly travelling by Uber at least once in three-month period. According to the report, Victoria residents are the second most likely to travel by Uber.
Despite the Victoria state government has not passed the law for its operation in Victoria. This gives Uber operation remains illegal in Victoria.
From the Australian taxation law, it is important to be aware that the fact an activity may be illegal. The tax law makes no distinction between income from legal and illegal activities.
According to ATO factsheet, here are the things you need to consider when operating as Uber driver:
GST consequences. If you provide ride-sourcing services, ATO treat you the same treatment with providing taxi travel services. Under GST law, if you carry on an enterprise and provide taxi travel services in that enterprise, you need to register for GST – regardless the turnover of your business.
Things that you need to be aware in relation to GST for the operator are:
- You are liable to withhold GST parts on the gross charges. So say, a passenger pays you $66 fare, the GST payable is $6 and your gross income is $60.
- Although you are able to claim GST credits on some expenses to reduce your GST liability, the Uber commission fee has no GST component. The commission formula is $1 Rider fee plus 20% commission. This means your GST credit will be reduced by 20% of your income plus $1.
- you only can make a claim for a creditable purpose only. For example, if you use your car 20% for Uber business and 80% for private. This means you only can claim GST credit of 20% from the GST components. Say you pay petrol $110, the GST components in the petrol price is $10. The GST credit that you are able to claim is only $2 – which comes from 20% x $10.
Income tax consequences. The Uber driver’s gross fare income is an ordinary income (e.g. business income). You need to include it in your assessable income. If the Uber business generates a loss, ATO may seek to deny the loss by challenging the subjective purpose of the taxpayer in incurring the expenses (TR95/33). Furthermore, the loss cannot be offset against other assessable incomes, unless one of the four non-commercial loss tests is satisfied.
Typical claimable deductions are:
- Uber commission,
- business portioned of car expenses,
- accountant fees,
- parking/toll fees, phone/internet/GPS,
- protective-gears,
- initial police check fee in relation to the Uber business (amortised over 5 years).
Here are expenses you may incur in running the business but may not be deductible:
- private/personal clothing,
- meals,
- speeding/parking fines,
- cost of obtaining a driving licence,
- other personal costs associated.