Have you ever booked an Uber or ordered Uber Eats? Booked a holiday rental on an app? Used Fivver or Airtasker to find someone to mow your lawn? You’ve probably participated in the ‘gig’ economy.
Access to technology and the development of digital platforms have given rise to an economic model in which customers (demand) can be matched to providers (supply) on a short-term and payment by task (‘gig’) basis. According to the Australian Fair Work Ombudsman:
“the gig economy uses mobile apps or websites to connect individuals providing services with consumers.”
Due to the fluid nature of gig economy transactions and relationships, the traditional application of tax law to a set of factual circumstances becomes increasingly difficult, leading to a wider range of disputes between the ATO and taxpayers.
In order to ensure tax compliance, the ATO requests data from digital platforms including ride sourcing platforms and accommodation platforms in order to identify taxpayers who earn money through the gig economy. Where a discrepancy is identified, the ATO may contact the taxpayer with the details and the data that has been matched.
Whilst many gig economy ‘platforms’ such as Uber or Airbnb may be headquartered outside of Australia, the supplier and customer for particular transactions will be Australian taxpayers. The ATO uses data matching to capture information regarding suppliers and their transactions, to ensure that the income generated is covered by the tax system.
As discussed by our Employment team, the law in Australia distinguishes employees from independent contractors. So too do our various tax laws, with the definition and dividing line sometimes varying from state to state.
Determination as to whether a supplier of services is an employee or contractor has an impact on the tax obligations on both the supplier and customer, and penalties may apply to taxpayers who get this wrong. Some key tax considerations include:
Entitlement to deductions is limited for employees, as it is assumed that the employer covers a wider variety of the goods and services necessary to generate an income. Conversely, contractors may be able to obtain a wider variety of deductions related to the cost of running their business, including for office equipment and travel costs.
One of the core tax issues gig economy suppliers continue to face is the availability and apportionment of deductions. In many cases, provision of services involves use of a capital asset already owned by the supplier (for example, Uber drivers who use their own personal cars, Airbnb providers who rent out rooms in their own personal homes). Some of the expenses associated with these assets may be considered personal expenses which cannot be deducted under the tax law. Consequently, the taxpayer must undertake a process of apportionment to determine what deductions are available to them. Availability and quantity of deductions for gig economy suppliers is a common source of disputes with the ATO.
Employers are typically obliged to withhold amounts from payments to employees for the purposes of PAYG tax payments. Conversely, most contractors are paid the full amount contracted for and independently complete their tax returns and may have a tax bill at the time of lodgement.
Employees are not obliged to collect and remit GST for the services they provide. Contractors with a turnover of greater than $75,000 will generally be required to register for and pay GST.
Whilst the general threshold is $75,000, ride share suppliers are considered a special category for GST purposes. All ride sourcing drivers are required to have an Australian Business Number and register for GST on the services. Ride share drivers (such as Uber, Ola, Didi) should be aware of any GST obligations which arise.
Our tax disputes team collaborates with experts in various areas of law (such as Employment Law) and are well placed to assist gig economy taxpayers in engaging with the ATO on what are often new issues of law.
Assistance we can provide includes: