Uber, Airbnb and Airtasker are becoming increasingly mainstream as unique, flexible opportunities to earn a side income for almost anyone with a good car, spare room or extra time to work.
Last year, Deloitte Access Economics estimates 45,000 people earned income through the collaborative economy in NSW alone and more than half of all Aussie consumers had participated in the sharing economy in some way.
But there are a few essential things rideshare drivers, space-sharers and other ‘sharing economy’ workers need to know come tax time. Those earning income from the sharing economy should prepare for close scrutiny from the ATO.
It is cracking down on the sector and those who jump in without good tax planning could soon have an ATO tax debt in the thousands, even tens of thousands of dollars.
Here are some general principles to follow when it comes to tax time:
1. Don’t hide your earnings
Whether you use Airbnb or Uber to earn a bit of extra cash on the side or as your primary source of income, it all must be declared on your tax return. Track your income and be honest on your tax return.
Those who under-report their income may end up owing back taxes and be hit with fines, penalties and interest charges.
2. Don’t spend it all
It can be tempting to count any extra money you’ve made through Airbnb or Uber as a freebie toward your rent, paying off your car, or even as an excuse for a shopping spree.
But just as your income is boosted by your Uber driving or rental, so is the tax you’re required to pay. If you don’t set aside some of your earnings, it can be a nasty surprise at tax time. During your first year you should put aside at least 30, even 40 per cent of what you earn from the ‘sharing economy’ to be safe.
3. Keep track of your expenses
If you need to buy something to run your Airbnb or Uber, you may be able to claim a portion (or all) back at tax time. The key here is that you need to keep a record of your expenses in order to claim them.
If you are renting out a room or apartment, you can claim expenses and depreciation for the percentage of your house that was rented, for the duration someone was paying. This includes things like internet and phone costs, utility and council rates and deprecation of furniture.
Ridesharing drivers can claim work-related expenses including insurance and registration costs, car maintenance and repairs and even car cleaning costs.
This means you need to keep an accurate account, apportion your expenses accurately and, in some cases maintain a log book. And remember, in the ATO’s eyes, it’s up to you to know your tax obligations, so just ask a professional tax agent if you’re not sure.
4. Know the surprising things you can claim
There are a few surprising items you might not realise can be claimed. For example, you can claim the costs of the mints and water you purchase for your Uber. Even more fun, the fees for Spotify, Pandora or Apple music streaming services your Uber passengers listen to can also be apportioned and deducted from your income.
If you pay a fee to join onto a sharing economy platform, these can also be deducted.
In an Airbnb, you can consider claiming any additional extras, but the most important thing you should claim is the interest on your mortgage.
5. Know your obligations
It’s important to have an understanding of how the sharing economy impacts your individual tax obligations otherwise you could be in over your head.
For instance, Capital Gains Tax is usually not paid for selling a family home, but if you’re renting out part of your home, it is treated differently by the ATO and you may be required to pay a portal of capital gains tax when you sell the property.
If you rent your home and want to ‘re-rent’ a room on Airbnb, you may need written consent from your landlord or even a tenancy agreement. Be sure to know the rules in your state or you could be in serious trouble!
The same advice applies for ridesharing drivers. Uber drivers are now required to register for GST and submit that portion of their fares to the ATO. That’s in addition to the tax you need to pay on your income. In any case where you’re not sure, or where tax policies are still under debate, it’s best to play it safe.
The golden rule if you’re unsure about your obligations, ensure you’re one of the 70 per cent of Australian taxpayers who use the services of a professional tax agent to help ensure they’ve got it right when lodging their returns to the ATO.
Simone Gielis is a Senior Tax Agent and General Manager at ETAX.COM.AU, Australia’s number one online tax agent service. Specialising in online taxes since 1998, Etax.com.au enables most Australians to complete their tax return in under 15 minutes.