Be mindful of GST obligations when engaged in ride sharing

The Australian Taxation Office has been flagging its interest in ensuring drivers involved in ridesharing arrangements are paying the right amount of goods and services tax. You will recall that there has been a debate related to the application of tax rules to UBER drivers – the ATO is now taking a good look at how the drivers are doing with compliance with the tax rules.

Given that some of you reading this web site might be involved in shared economy activity it is timely to dip into the some of the rules that might apply to you if you are engaged in a shared economy enterprise.

Now first for some basics

Business owners engaged in providing goods or services should have an ABN and should also be registered for GST where they expect to receive $75,000 or more in GST turnover Not all businesses will reach that threshold and as such are not required to register for GST, however, the law states that it is a requirement for someone who provides taxi travel as a part of an enterprise to be registered.

The law has been interpreted by the ATO as requiring all people involved in ride sourcing or ride sharing to be registered for GST in the same way as those providing traditional taxi services. However, the GST registration requirements do not extend to:

Car pooling arrangements where people pay some money to cover costs of fuel and any other incidentals and the arrangement has no profit objective;
Car sharing arrangements where many individuals have access to a car which they use to drive themselves from one location to another,
Arrangements that use vehicles other than cars, for example motorised tricycles,
Circumstances where a car is used only to transport passengers for a particular purpose, for example a wedding or a funeral procession, and which is not made available more generally to transport members of the public from one place to another.

Income forming a part of GST turnover

All income earned domestically will need to be recorded and the GST appropriately accounted for in accordance with the GST Act. This means that all of the income – irrespective of any charges paid by the taxpayer to the facilitator of the app – must have GST applied. If a passenger pays $55 for a ride then that whole amount is recorded by the ride share business operator. Any amount that is remitted to the overseas-based facilitator of the app is a transaction between the business operator and the facilitator. The business operator can claim back the portion of the GST that forms a part of the payment to the facilitator as an input credit. That fee paid to the facilitator is an expense that is an allowed deduction in these circumstances. Any cancellation or similar fees charged must also be accounted for including the GST. A cancellation fee is a domestic charge and the amount constitutes income.

Payments from an overseas based facilitator that take the form of a bonus or a success fee are GST-free.

Specific expenditure issues related to ride sharing

Expenses incurred in the running of the ride sharing enterprise will need to be allocated between those incurred for private purposes and expenses incurred for business purposes. The Act prohibits the deduction of an expense where it is unrelated to income earning activities. In the case of ride sharing or ride sourcing the most important prohibition mentioned in section 8.1 is that a taxpayer is unable to claim as a deduction losses or expenses arising from activities of a personal or household nature.

If a driver uses their car 90% of the time for private purposes then only 10% of any costs in running the rideshare business can be claimed. This means that fuel and other costs will need to be allocated appropriately. A taxpayer that buys $44.00 worth of fuel would only be able to claim $4.00 as an expense. The $0.40 in GST is claimed back from the government in the GST lodgement.

Expenses such as parking fees, tolls and phone call costs would be regarded as appropriate claims for a general deduction if they are directly related to the enterprise itself. The taxpayer should keep copies of the invoices and also a diary or a logbook to ensure that they are able to substantiate the claim if they were ever subject to an audit.

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