Tax consequences of making money in the share economy
A little while ago I was preparing the tax return of a client and had almost (I thought) completed it when the client told me that they use Airbnb to rent out a room of their home to travelers and asked if that mattered.
Yes, as a matter of fact, it certainly does! I showed the client some pages from the Australian Taxation Office (ATO) website to help explain that it is assessable income and that deductible expenses must be calculated carefully.
Uber is another very popular share economy service, but sharing is actually becoming more difficult than you might have thought. The ATO is now very determined to make sure that sharers report their income and pay the tax due on that income. It would be of no surprise to me if someone excited about making a little extra money by renting out a room in their house, or driving a stranger around, decided it wasn’t worth it once they learned there is a bit more to it than registering through the app.
Registering as a provider for these sharing services will result in having to take on the obligations of a business operator. For tax purposes, the ATO views income earned from sharing activities as if they were from any other ordinary source or business activity. That may mean applying for an Australian Business Number, registering for GST, recording income and expenses, submitting Business Activity Statements and declaring all income and expenses in your income tax return.
The ATO has ruled that anyone with an annual turnover of more than $75,000 from all activities in the sharing economy is required to register for GST. Income from renting out a room in your house or a whole house is excluded as rent is free of GST.
Renting out a room in your home will result in some complexity in calculating your deductible expenses. Those that directly relate to the rental income can be claimed in full while other expenses will need to be apportioned based on the floor area available to the tenant. When the home is sold the main residence exemption from capital gains tax may not apply in full if and when the house is sold.
You would be faced with some different requirements as an Uber driver. Last year the ATO ruled that Uber and other ride-sourcing services met the definition of taxi for GST purposes. This means that to be an Uber driver you must register for GST, charge GST on the full fare and lodge regular business activity statements, as well as report your income and expenses in your tax return.
There are tens of thousands of Uber drivers and properties listed on Airbnb around Australia, and those numbers are growing. Uber operates hundreds of cities worldwide and Airbnb has more guests than Hilton Worldwide, which is the largest hotel chain in the world. Uber and Airbnb are worth billions. The share economy is here to stay. I’ve used these services and I’d recommend using them because they’re convenient and reliable.
If you’re interested in trying to make money from the share economy we at Optima Partners can help you meet all of your tax obligations so please get in touch.
Daniel Causerano – Senior Accountant