Shared economy – things you need to know
If you have a spare room, or some spare time, your friends may have suggested you to grab some cash by hosting your room on Airbnb or becoming an Uber driver.
You thought the idea of being able to generate extra cash without being tied up in an office 9-5, or having some flexibility on deciding when to work sounds cool, and (after a few drinks) your friends suggested that you do not need to report that as income, for whatever reasons.
Sounds too good to be true? Well, it sure is.
The ATO are focusing their attention on the “sharing economy” – the popular ones are Airbnb, Stayz, Uber and Taxify. Below are a few things to consider before starting your shared economy business.
Ride-sharing drivers – Uber/Taxify
The ATO requires ride-sharing drivers to be registered for ABN and GST before they start ride-sharing.
To become GST registered, it means you are obliged to report and pay your GST received (and declare your GST spent) on a quarterly basis. This means 1/11th of your income received from ride-sharing is GST that you will have to pay to the ATO.
On top of the GST liability, any net profits from ride-sharing activity (ie your ride-sharing income less associated expenses) will be reported in your tax return in the relevant financial year, where you will pay marginal tax on the amount.
Furthermore, the ATO may request that you pay PAYG Instalment annually/quarterly to cover the estimated income tax liability in the future.
All these puts a dent to your plan to cash in from the ride-sharing activity, as well as your cashflow budget.
Offering your spare room to Airbnb/Stayz
If you are renting out a spare room in your residential home, you do not need to register for GST.
However you will still need to keep records of the income generated, and work out the expenses associated to it and report all on your tax return.
Similar to ride-sharing, the ATO may request you to pay PAYG Instalment annually/quarterly to cover the estimated income tax liability.
A word of warning: what they didn’t tell you…
If you offer a spare room for rent on Airbnb/Stayz at a home that is owned and lived in by you, you may not satisfy the full main residence exemption on your home, this means that when you sell your home in future, part of the profits will be capital gains taxed. This could cost you more in tax than what you earned in renting out a spare room if you own your own home for years.
Please note: we are not, in any way, opposing to the idea of a shared economy, in fact, shared economy can be a more efficient way of allocating recourses, as well as helping the people in a local community. However we notice there are a lot of myths floating around about shared economy that we thought we would clarify, or make you be aware of them before getting into the business.
The record keeping…
In general these are the information you need to keep:
- income received, with dates and amounts
- associated expenses, sometimes apportionment is required
- receipts of all expenses
- (if you are GST registered), how you worked out the GST amounts on your quarterly Business Activity Statements (BAS)
Need help? Leave the tax work to the experts.
Whether you need help setting up your ABN, registering for GST, or dealing with the ATO, to managing the lodgement of your quarterly Business Activity Statement (BAS) and tax return, we are here to help.