The “sharing economy” is a term used to describe economic activity that connects buyers (users) to sellers (providers) of goods and services through an online platform (an app or a website). Such online platforms are usually hosted by a facilitator who is neither the provider nor the consumer of those goods and services. Popular sharing economy services include:
(1) renting out a room or a whole house or unit on a short-term basis, for example Airbnb and Stayz
(2) providing “ride sourcing” services for a fare (considered to be taxi travel) such as Uber and GoCatch
(3) providing personal services for a fee, including creative or professional services such as graphic design and creating websites, or odd jobs such as deliveries and furniture assembly, and even pet sitting or boarding, like Airtasker and Mad Paws
(4) renting out a car parking space, for example Parkhound, Park Monkey and Spacer.
The ATO’s updated guidance document The sharing economy and tax provides its position with respect to these four categories of participation in the sharing economy. These four categories of participation in the sharing economy are of most relevance to individual taxpayers. The challenge that the sharing economy poses in a tax context is that it brings into the market a large number of individuals who are not otherwise business taxpayers, thereby creating an administration and collection issue for income tax and GST. The sharing economy raises a range of tax issues depending on the type of transaction in question but none of those issues are particularly new or controversial. The new aspect is the scale of non-business taxpayers actually or potentially converting themselves into business taxpayers, and having to confront tax issues and levels of administration that may be unexpected.
Although the sharing economy business model differs from that of a traditional service provider, the ATO has indicated that it can only apply the tax law as it currently stands. This means that service providers within the sharing economy have the same tax obligations as traditional service providers.
The ATO guidelines reflect this view and broadly, the outcomes are as follows:
• Income tax — Payment for services provided is assessable income for income tax purposes (¶10-010), unless there are reasonable grounds to consider the activity of providing the services as a hobby or recreational pursuit (¶10-050). The ATO guidelines do not provide a specific example of a level of activity that would not be regarded as a business, although it is stated that if a taxpayer did jobs on an infrequent basis, “for example one or two small paying jobs per month”, the taxpayer would not have the scale or permanency of activity that would indicate a business. From a practical point of view, the example given in the guidelines indicates that almost all sharing economy activities above the de minimus level indicated will be regarded by the Commissioner as a business. In particular, the provision of services to strangers at arm’s length is said to give the activity a commercial character (¶10-105), as does the use of a sharing economy website. Consequently, unless the taxpayer provides personal services through a sharing economy platform on a very small scale, they will be required to include the amounts paid to them for the services in assessable income, and will be entitled to deduct expenses incurred in carrying on the business (¶16-015).
Work-related expenses and deductions, and expenses relating to the use of the sharing economy platform would also be deductible under ITAA97 s 8-1 (¶16-010). In the case of renting out a room or a whole house or unit on a short-term basis, the guidelines do not contemplate a minimum level of activity in the way that they do for the provision of personal services. While it is possible that a single or small number of short-term rental arrangements might be considered de minimus, it is difficult to see how a rental arrangement might be dismissed as a hobby, or as recreational. As a general rule, income from renting out a room or whole house or unit on a short-term basis will be included in assessable income (¶10-500). Consequently, deductions will also be available under ITAA97 s 8-1 for expenses ordinarily incurred related to rental properties such as fees or commission charged by the facilitator or administrator, council rates, interest on a loan for the property, electricity and gas, property insurance, cleaning and maintenance costs (products used or hiring a commercial cleaner) (¶16-650). Where the property is the taxpayer’s own residence and the rental arrangements are short-term, apportionment of those expenses will be required.
The ATO guidelines include detailed instructions on how to apportion deductions for expenses, based on the proportion of the year the house or property is rented out, the portion of the property rented out (for example, a room or the whole property), and whether the home or part of the property is used for personal use when it is not rented out.
• GST — If an individual is carrying on an enterprise and their annual threshold is above $75,000, they must register for GST (¶34-100).
If an individual is carrying on an enterprise of providing ride-sourcing services, under the GST law they must be registered for GST, and must account for GST on the full amount of every fare regardless of how much is earned (¶34-220). They can also claim the business proportion of input tax credits (¶34-110). The GST registration threshold does not apply to ride-sourcing services because they are a supply, for GST purposes, of “taxi travel”. The ATO also considers that the individual is running a small business as a sole trader, so they must declare all the income earned from providing ride-sourcing services and can claim the expenses related to providing the services.
Those already registered for GST must report the income on their GST return (¶34-150).
In the sharing economy category of renting out a room or a whole house or unit on a short-term basis, the GST position will in most cases be quite different to the issues already identified that relate to the provision of personal services for a fee, renting out a car space and the provision of “ride sourcing” services for a fare because GST does not apply to residential rent. The supply of residential premises by way of lease, hire or licence is an input taxed supply (¶34-230). Accordingly, no GST is payable with respect to rent if the property is the taxpayer’s residence or a private residential investment property. However, the provision of accommodation in commercial residential premises (eg a hotel, serviced apartment, or bed and breakfast) or renting out commercial spaces like a function room or office space is generally taxable.
There are some sharing economy rental online platforms that allow taxpayers to make commercial premises such as office space available for rent. The GST exclusion for residential rent will not apply to rent paid for these types of properties. If an individual is carrying on an enterprise and their annual threshold is above $75,000, they must register for GST (¶34-100). If an individual is carrying on an enterprise of providing ride-sourcing services, under the GST law they must be registered for GST, and must account for GST on the full amount of every fare regardless of how much is earned (¶34-220). They can also claim the business proportion of input tax credits (¶34-110).
• CGT main residence exemption — A consequence of renting out a room or a whole house or unit on a short-term basis or renting out a car parking space is that it is likely that part of the CGT exemption for a main residence will be lost. A capital gain or loss from a dwelling is disregarded if the taxpayer is an individual, the dwelling was the taxpayer’s main residence throughout the ownership period and the interest did not pass to the taxpayer as a beneficiary in, or as the trustee of, the estate of a deceased person (¶11-730). If the residence is used for the purpose of producing assessable income during the ownership period, the taxpayer will lose a proportion of the exemption based on the proportion of the property made available for rent and the length of time it was rented (¶11-760).
Under ITAA97 s 118-145, the full CGT main residence exemption may still be available if the taxpayer moves out of the main residence to live in another home for a period of time (¶11-740). If the property is used for income-producing purposes, the maximum period the dwelling can be treated as the taxpayer’s main residence is six years. However, the key issue in this provision extending the main residence exemption is that there must be a cessation of the property being the taxpayer’s main residence. In the case where a taxpayer vacates their home for a short time to stay with friends or family in order to accommodate guests or rents out a car parking space, this is unlikely to occur.