Issues on Taxing the Sharing Economy Businesses
According to the Grattan Institute report published in April 2016, the rise of the sharing economy (also referred to as collaborative consumption or the peer-to-peer market) is expected to provide Australians with the potential to save more than $500 million on taxi bills, as well as the opportunity to put underused homes, cars and other assets to use. Platforms such as Uber and Airbnb also create an income opportunity for those on the fringe of the job market and provide potential growth in the labour market. As the sharing economy continues to flourish, it is worth taking a look at the relevant business model and the current taxing arrangements.
The Sharing Economy Business Model
Broadly, the sharing economy is a business model that involves sharing access to goods and services on a consumer-to-consumer basis. For example, ride-sharing service Uber and accommodation-sharing service Airbnb connect service providers directly with users. The sharing economy has placed particular emphasis on providers and consumers interacting digitally, particularly using social media and apps.
Sharing Economy and the Tax Law
Although this is a new business model, the ATO can only apply the tax law as it currently stands. This means that the service providers within the sharing economy have the same tax obligations as traditional service providers. The ATO guidelines reflect this and, broadly, the outcomes are as follows.
The ATO is likely to take the view that any income earned by Uber drivers, Airbnb hosts and similar providers is assessable income and should be disclosed accordingly unless there are reasonable grounds to consider the activities a hobby.
The ATO’s view results in three potential GST outcomes:
- If an individual is carrying on an enterprise and their annual turnover is above $75,000, they must register for GST.
- The ATO considers ride-sharing services similar to taxi services, so a taxpayer who provides such services must register for GST regardless of the turnover amount.
- Taxpayers who are already registered for GST must report sharing economy income on their GST return.
The widespread use of online social media to advertise these services means that if the ATO focuses on reviewing providers of goods and services in the sharing economy, it would not be difficult to identify them. As we wait for further developments in this area, the prudent approach is for providers to make sure they disclose their assessable income from the sharing economy and keep good records of any deduction claims, especially where assets are partially privately used.
As the sharing economy continues to grow, the Government may identify a fall in tax revenue from larger businesses as small-scale operators gain greater market share. However, the fall in tax revenue from these larger operations may be compensated by the increase in tax revenue from the online platforms that facilitate the sharing economy transactions. This would depend on how current tax laws (or future tax laws) deal with the complex international tax issues that arise where the online platforms are not necessarily based where the transactions take place.
While there have been discussions in the press concerning these matters, there is no immediate indication that new tax legislation will be introduced to govern the taxing of the sharing economy as a whole. If the sharing economy continues to grow and contribute positively to the Australian economy, finding the balance between taxing the service providers and the online platforms that facilitate these transactions is likely to be a challenge. The sharing economy shows no sign of slowing down and could become an area of increased ATO focus in the future.