Are you an Uber driver or renting properties through Airbnb? The two services have become known worldwide and lots of people in Australia are joining in – but what are the tax implications of becoming part of a sharing economy?
First things first: understanding the basics of income tax
The basics of tax apply to these services – they apply regardless of how you earn money. You don’t have to be carrying on a business to pay tax on the income you earn. The ATO has the capacity to track your income from these platforms and match the money flowing through to financial institutions.
Airbnb: Sharing a room, or sharing the entire house
Airbnb service taxation works just like any other rental property arrangement. If you have a property asset and want to make the most of it, Airbnb is just the solution for you – and taxation is no different than what you normally pay for renting out your property.
From a tax perspective, you must include the rental income in your income tax return.
As a host, you can also claim tax deductions for expenses associated to the rental, but they have to be in proportion to how much of your home you rent out and how long you rent it for. Thus, you can claim tax deductions on your home loan, professional cleaning or fees charged by the facilitator, council rates, insurance etc.
[ctt template=”9″ link=”vbj5H” via=”no” ]GST does not generally apply to residential rental income. [/ctt]
Tip: GST does not generally apply to residential rental income.
Does this affect your CGT Exemption?
Renting out your home may impact your tax-free main residence exemption for CGT (capital gains tax). Your home is exempt from CGT when you sell it. Renting it, however, may mean that you might only qualify for a partial exemption unless concessions apply.
On the same note, if you are only renting out part of your home while still living there, you probably will not be able to keep the gains you make CGT-free. It is recommended that you obtain a valuation of your home at the time it was first used to generate rental income.
Airbnb: Hosting for investors
A number of investors are generating income from renting residential investment properties exclusively on sharing services rather than traditional longer-term rental arrangements – rental income can be higher for short-term accommodation and the host has the capacity to increase prices easily for peak periods.
It was shown that properties located in tourist areas attract investors quickly.
What tax implications do you need to be aware of if you own one or multiple investment properties and rent them on a sharing service such as Airbnb?
- As with a lot of things in the tax world, it depends. Therefore, it is vital that you get the right financial advice, as this can easily take you on the wrong side of the tax law, with serious implications.
- Before becoming a host, check if there are council restrictions.
- Make sure you have the right insurance plans in place before you start renting out your property.
Airbnb: Sharing a property owned by your SMSF
There is nothing that prevents a SMSF property from providing host services, assuming that the investment strategy of the fund allows for the risks associated to this style of rental and the liquidity issues have been thought through by the trustees.
The rules remain the same: no one associated with the fund can use the property. This includes family, relatives, members or other associates.
Tip: It is essential to keep a clean and accurate record for audit purposes to prove how, when and to whom the property was rented.
[ctt template=”9″ link=”2ux8I” via=”no” ]Check that your insurance is appropriate to protect the fund’s assets. [/ctt]
Bonus tip: Check that your insurance is appropriate to protect the fund’s assets.
Uber: sharing and sourcing
Uber is regarded as a taxi providing service, so if you are an Uber driver, you will need to register for GST regardless of how many hours or how much income you earn from this activity.
Normally, taxpayers need to reach a $75,000 threshold before they need to register and remit GST, but this rule does not apply to taxi drivers.
Tip: The good news is that if you already have an ABN – say, for IT contracting services – you can use that for ride-source services and register for GST using this ABN.
You might also be interested in: What Can An Uber Driver Claim As A Tax Deduction
For infrequent drivers: if you drive fewer than 5,000km in a financial year:
- You need to declare income on your income tax return
- You can claim any expenses you paid for providing ride-sharing services if you own or lease the car you use for ride-sourcing
- You can choose to claim 66 cents per km deduction for the kilometres you travel while providing ride-source services
- Alternatively, you can keep a logbook for 12 weeks to work out your deductions
- You can claim GST credits on expenses you incur in providing these services
- If you don’t use the car exclusively for these services, you can only claim deductions and GST for the expenses that apply to providing ride-source services
If you provide ride-sharing services on a regular basis:
In this case, you have access to a broader range of deductions as well as strict rules, such as:
- Access to business concessions, including immediate tax deduction on assets costing up to $20,000 (GST excl.).
- You could be subject to some strict rules which apply to losses made from business activities.
Other sharing economy services
There are a number of other sharing economy services you might be involved in, like providing removal or delivery services.
Work through the basic rules to determine:
- Whether the activities amount to a business
- The income and deductions that need to be declared on your tax return
- The records that need to be kept in order to support the claims that are being made
- Any ABN or GST issues that are associated with providing these services.
Learn how to make the most of your tax if you earn through Uber or Airbnb
At Shuriken, we specialise in Uber and Airbnb style earnings. Our specialists can help you find a solution to make the most of your income. Contact us today to discuss your options.