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Is Uber A Taxi Service? – The Great ATO Contradiction.
10th July 2019
A recent ATO decision has bought this ongoing debate back into the spotlight: Is Uber a Taxi Service?
Back in 2017 we thought the ATO had made up their minds. In a courtroom challenge by Uber, they determined that under GST laws, Uber met the definition of a taxi service. As a result, Uber drivers are now forced to register for GST from the first dollar they earn, just like taxi drivers.
But in a new decision from the ATO this week, under Fringe Benefits Tax (FBT) law, Uber is apparently NOT a taxi service.
On the surface, this sounds like a clear contradiction. Surely it can’t be right that the ATO label Uber a taxi service under one tax law and not a taxi service under another?
But as outrageous as this sounds there is a rational, if not outdated, explanation.
Uber is a Taxi Service for GST Purposes
First a little recap on the events of 2017.
Uber and the ATO had been battling as to whether Uber met the definition of a taxi service for GST. This was to be the deciding factor in whether Uber drivers would be forced to register for GST from the first dollar they earn under specific tax rules for taxi drivers, instead of enjoying the $75,000 threshold like every other Australian business.
The ATO stated that in our GST legislation, “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”.
The nail in the coffin came when, as part of the courtroom proceedings, 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 of a taxi service too.
As a result of this decision, Uber upped their prices by 10% and Uber drivers across Australia reluctantly began to lodge their BAS’s every quarter and pay their GST bills.
Uber Is Not A Taxi Service for FBT Purposes
Just to be clear, this does not directly affect Uber drivers themselves, and there are no changes to the GST obligations for Uber drivers.
The ATO’s recent ruling is about Fringe Benefits Tax. FBT is a tax that companies must pay when they cover expenses on behalf of their employees. There is a specific FBT exemption for taxi travel, but up until now it was unclear as to whether this would include Uber.
It seems that the FBT tax exemption refers to a ‘licensed’ taxi, which the ATO has decided means a taxi “licensed to provide rank and hail work”. So for the purposes of FBT, Uber is NOT a taxi service.
Obviously this is a very different decision to the GST case. But it’s not because the ATO changed their minds, but actually an inconsistency in the tax legislation itself.
The ATO Uber Taxi Contradiction
The reason for the contradiction is because the two sets of rules, GST vs FBT, are worded slightly differently. One definition captures Uber while the other doesn’t.
This isn’t so surprising. The latest version of the GST Act was issued in 1999, and the FBT Assessment Act way back in 1986. Our tax laws were written before Uber, or even smartphones, were invented.
Those who wrote these tax law could not have imagined the invention of ridesharing, so the exact wording of our tax laws simply didn’t take Uber into account.
So what we have now is one set of legislation that refers to a ‘licensed taxi’, and another that refers to a ‘taxi service’. Back in the 80’s and 90’s we can understand these two things were one and the same, because there was only one kind of taxi. But with the invention of rideshare, the ATO suddenly finds itself in an awkward position, where Uber fits one definition but not the other, inadvertently creating a complete contradiction.
What Happened To The Level Playing Field?
From an Uber Driver’s perspective, what really stings is that all this time, the government have been preaching a ‘level playing field’.
The requirement for Uber Drivers to register for GST was justified as putting them ‘on par’ with taxi drivers, who are also forced to register. The two are direct competitors, so it’s reasonable that they both have the same taxes to contend with when setting their prices.
Then the ‘level playing field’ was pushed a step further. Some state governments began to force Uber to charge riders a levy, which would be passed on to taxi license holders. The arrival of Uber had slashed the value of their licenses, so the government decided that Uber riders should pay an additional levy to fund a compensation scheme. The fairness of this levy is a topic for another day, but my point is that the government actively intervened to correct a supposedly unfair situation.
And now we have these FBT rules that disadvantage Uber against taxis in the eyes of companies who pay for transport for their employees. They get a tax exemption for a taxi but not for Uber, so you can bet they’ll be instructing their employees that it’s taxis only from now on.
In both of these examples, the levies and the FBT rules, Uber drivers are the ultimate losers. In order to remain competitive and entice riders to keep using the Uber platform, Uber will have to reduce fares. And that means less money in driver’s pockets.
The ATO Doesn’t MAKE The Laws, They Only APPLY The Laws
So in the face of this imbalance that obviously needs correcting, what can actually be done? Well from the ATO’s end, not much.
“The ATO can only administer the law, it cannot change it“, says Tracey Dunn, Tax Specialist at RSM, in an interview with ABC News. All the ATO can do is read the tax law as it’s written, and interpret it as per legal and dictionary definitions (or six dictionaries in the case of the Uber GST decision).
As much as we all love to hate the ATO, blame doesn’t truly rest with them here.
A Fair Playing Field For Uber Drivers Is In The Hands Of The Government
So who has the power to fix this outdated mess? It is only the Federal Government that has the power to change our tax legislation.
Uber have this week expressed their disappointment with the ATO’s FBT interpretation, and stated: “we are working closely with the ATO to address this inconsistency”.
The government has been so proactive in ‘leveling the playing field’ in support of taxi drivers, so surely it’s reasonable to expect equal measures to level things the other way too?
It is the responsibility of our Government to ensure that our tax laws remain relevant as technology evolves. The transport industry has experienced incredible growth and innovation in recent years, yet is still being governed by tax laws that were written back when the only way to call a taxi was with a landline phone.
It is my hope that Uber Drivers will get to enjoy a level playing field too.
Thoughts? Questions? Leave a comment below and I’ll respond shortly! – Jess
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.
About the Author – Jess Murray CPA – Uber Accountant
Jess Murray is a CPA Accountant and registered tax agent. She’s been working in personal and small business tax for 15 years, and has been specialising in tax for Australian Uber Drivers for the last 7 years as the Director of DriveTax. She also teaches an online course called Understanding Uber Taxes.
Jess is on a mission to make taxes straightforward and manageable for Uber drivers across Australia.