The ATO’s Requirements for Uber Drivers

The ATO announced on the 20th of May 2015 that Uber drivers must register for GST. They’ve determined that under GST law, Uber, and by extension all rideshare services, meet the definition of a taxi service. This is significant because taxis have different GST rules to any other small business.

Under the GST law, if you carry on an enterprise and you provide taxi travel services in that enterprise you are required to be registered for GST regardless of your turnover. This means that, instead of only having to register when your turnover reaches $75,000, you must register from the first dollar you earn. Since it’s been confirmed that Uber fits this definition, Uber and all rideshare drivers must now register for GST from the day they start driving.

This is a game-changer. You’ll now be required to lodge quarterly BAS’s, and pay 1/11th of your gross fares less expenses to the ATO, in addition to paying income tax on the net amount. For many, this is completely new territory, and perhaps more than they bargained for when they signed up to drive.

If you’ve never calculated GST or lodged a BAS before, we can help get you registered and meet your BAS lodgment obligations. Head to our blog post on the Seven Steps for Sorting your Rideshare Tax Obligations for our ultimate guide to managing your tax.

For those who are interested in further detail on the legal arguments for why you must register, read on.

 

Update: February 2017

We now finally have a result from Uber’s appeal, and the ATO’s position discussed in this blog post has been re-confirmed.

During the appeal, the ATO’s legal team read out definitions of a taxi service out of SIX different dictionaries to prove that a taxi service is any service that drives passengers from A to B for money.  The court concluded that while a yellow car with ‘TAXI’ on the side and a light on top is certainly a common form of taxi, it’s not the only possible kind that fits the definition. They found that Uber, and by extension all rideshare services, meet the definition too.

This means that is it now completely certain that Uber and rideshare drivers must register for GST, and the ATO have made it clear they’ll be enforcing this.

 

 

Is Uber Really A Taxi Travel Service?

The ATO state that “the word taxi takes on its broad ordinary meaning of a car made available for public hire that is used to transport passengers for fares.”

How the definition of ‘public hire’ applies to Uber services is a topic of hot debate. Kathrin Bain of the School of Taxation and Business Law at UNSW Australia explains it perfectly.

“Uber has highlighted the fact that drivers cannot accept street hails, cannot wait at taxi ranks and do not use taxi meters. But the vehicles used by Uber drivers are available for public hire – members of the public use the Uber app on a smartphone to book the service. So while the method of booking the service may be different to a conventional taxi service, the service being provided is the same as that provided by a conventional taxi driver.”

CPA Australia’s head of policy Paul Drum agrees. “If it looks like, smells like and quacks like a taxi service, then it probably is”.

However in an interview with Fairfax Media, Uber’s general manager in Australia David Rohrsheim said the company had written to their 9,000 drivers telling them that it was going to challenge the ATO decision. “We disagree with the ATO’s interpretation … and we will be challenging this. So stay tuned”.

 

But Isn’t Uber A Foreign Company? Shouldn’t They be Exempt from GST?

This is true, but it’s irrelevant, because they’re not the one supplying the service to riders. The transaction is directly between you and your rider. This means you, an Australian driver, are the supplier so GST is applicable. Uber have deliberately structured themselves as just a third party who arrange bookings and do the paperwork for you.

The commission that Uber charge you, on the other hand, is a supply by a foreign company. Since Uber is not an Australian company, our tax laws don’t apply, and they don’t have to pay GST to the ATO. This means there is no GST in the fees they charge to you. Therefore, since you didn’t pay any GST in the first place, you can’t claim any GST credits back on your BAS. (You can, however, claim a tax deduction for the Uber Fees on your end of year tax return).

 

If Uber Is Supposedly Illegal, Then How Can The ATO Tax Me?

In an side note within the ATO’s statement, they said “The ATO expresses no view about whether ride-sourcing vehicles are taxis within the State and Territory specific definitions. More generally, the ATO expresses no view on the legality of ride-sourcing arrangements. The sole purpose of this document is to clarify how the tax laws administered by the ATO apply to ride-sourcing.”

The legality of ride-sharing services is of course still being debated, some states have endorsed it, in others it’s still illegal. But the income of drivers will be taxable regardless. Tax legislation makes no distinction between income from legal and illegal activities. In past cases, even activities such as drug dealing and prostitution have been found to be taxable. So even where Uber is illegal, tax will still apply.

 

What If I Don’t Register?

ATO Deputy Commissioner James O’Halloran has said “If those providing ridesharing have not obtained an ABN and not registered for GST, then we will undertake compliance activities – that means reviews and audits – and assessments may be raised.”

The ATO has extensive power to collect information to help them identify taxpayers who should be registered for GST. Uber will of course try to protect the privacy of their drivers, but they can be forced to provide details, or the ATO may be able to access other information sources.

The penalty for failure to register for GST is currently $3,400. The penalty for failure to lodge a BAS begins at $170 per BAS if lodged within 28 days, and can stretch up to $850 per BAS after 113 days.

With penalties as tough as these, and the resources of the ATO, it’s safe to say that avoiding GST registration carries quite a high risk.

 

Update – December 2015

In late December the ATO sent letters to every driver who has received income from Uber, either confirming that they’d checked and found the driver’s affairs were in order, or advising they had been identified as non-compliant and must register for GST and pay the required tax immediately or be penalised. This confirmed once and for all that ATO know who’s driving for Uber. How do they know? We’re not sure, but the ATO have extensive powers to access information. It could be through the banks, or they may have legally compelled Uber to disclose directly. Either way, if you’re not registered for GST and paying tax, you can expect to hear from them.

 

Uber’s Appeal

Update: February 2017 – See above for the result of Uber’s appeal

Uber stated in their official response:

“Today’s decision by the ATO is not a tax on Uber but rather, impacts the over 9,000 ordinary Australians who drive on the uberX platform.

The ATO’s decision raises barriers to entry that disproportionately affect those who would be otherwise unemployed or underemployed and make it unduly difficult for those people to earn an income when they need it most.

We expect our driver partners to meet their tax obligations like everyone else but they should be treated no differently to any other independently-operated micro or small businesses”

The taxi industry, on the other hand, will continue to argue that Uber drivers should be treated no differently to other taxi drivers.

Regardless of these opposing views, the ATO will seek only to uphold the existing law, which means the only relevant question is the definition of a ‘public taxi service’. Uber maintain that they believe the ATO’s interpretation to be flawed, but independent tax experts seem to generally agree that it will be tough for Uber to argue that an Uber cab is anything other than “a car made available for public hire that is used to transport passengers for fares”. Time will tell.

 

What Next?

Assuming the ATO’s decision is not overturned, Uber driver’s face a deadline of the 1st of August. “Affected drivers must register for GST, charge GST on the full fare, lodge business activity statements and report the income in their tax returns,” ATO Deputy Commissioner James O’Halloran said.

Uber have advised drivers at this stage not to apply for an ABN or register for GST, while they challenge the ATO’s decision. However the penalties and consequences fall on you, not Uber, if you fail to meet your tax obligations. Make sure you’re fully informed before making any decisions.

To comply with your requirements, your plan of attack will look something like this:

  • Apply for an ABN and GST. Your ABN should be backdated to when you first began driving for Uber, because if you meet the requirements to be considered an enterprise (above), then you’re required to have an ABN regardless of the GST situation. For GST, it currently seems that as long as drivers registered by 1 August the ATO won’t take any further action on GST prior to this date. However you may find it easier to register from the start of the financial year at 1 July instead to make your BAS and end of year tax more straightforward.  DriveTax can apply for your ABN and GST Registration for FREE, and it only takes a few minutes. Click through to learn more about out FREE Uber Startup Pack.
  • Follow any instructions given by Uber with regard to advising them of your GST registration. They will need to adjust their records, so that if one of your riders requests a tax invoice it will contain the correct details.
  • Establish a logbook so that you can maximise your deductions against your Uber income. Our post on Tax Deductions for Uber Drivers gives more detail on what’s required.
  • Establish a record-keeping system to record and categorise your expenses. You may like to use a spreadsheet, or bookkeeping software such as Xero. At the very least, you should use an expanding file or other filing system to collect receipts and then add these up at the end of each quarter.
  • Establish a system to put aside a portion of your Uber income to cover GST and Income Tax. We’ve provided some tips and strategies in our article on Paying Tax with Uber.
  • At the end of each quarter, add up your income and expenses, and the GST on each, and report these to the ATO on your BAS.
  • At the end of the financial year, declare your income and expenses (excluding GST) on your tax return. If things are still up in the air when tax time rolls around, you can register with a Tax Agent prior to 31st of October 2015 and receive an extension of your tax return due date until May 2016. This should be more than enough time for the uncertainty surrounding Uber income to be resolved. You can register with DriveTax through our Contact Form.

 

Update – December 2015

Six months on, there’s now no doubt that Uber drivers must have an ABN and register for GST from the first dollar they earn, even if they only drive occasionally. Our GST Registration service for Uber Drivers takes care of everything you need to get started, and our BAS Services page explains how we can help with your BASs and other ongoing requirements. If you’re thinking of driving for Uber or have recently started, be sure to check out our post on the Seven Steps to Getting Your Uber Tax Obligations Sorted.

 

This is a lot to take in, especially if you’ve never had an ABN or tackled GST before. We’ll be doing our best to keep you informed on developments, so be sure to follow us on Facebook and Twitter for further news as it comes to light.

In the meantime, feel free to post your questions or comments below, or reach out via our Contact form.

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The information in this article is general in nature and does not take into account your personal circumstances. If you’d like to know how this article applies to you, please contact us to arrange a consultation, or talk to your accountant.