Uber drivers’ reporting obligation – tax deduction examples
Are you considering driving your car for Uber to earn extra money on the side? If so, this worked example below will help to illustrate how Uber driving will impact on your tax obligations.
Elon Leyland is currently employed as an engineer for Aerospaceco. To help grow his savings for a deposit on a property he decides to become an Uber Partner. He registers with Uber and immediately starts earning income. Elon has never previously supplemented his income. He has always been on salary and wages with PAYG withholding. He has a FEE-HELP debt and a small amount of interest income from his term deposits. Now Elon is exposed to the sharing economy, he wants to ensure that he continues to meet all of his tax obligations.
What are the tax consequences and the steps he needs to undertake to ensure he continues to be tax compliant?
Taxable income and deductions
Elon must declare all the income he receives from his Uber driving along with his salary and wages from Aerospaceco in his annual tax return, as these amounts are assessable as ordinary income. Any associated expenses directly associated with gaining this income will be allowable deductions for tax purposes.
Elon can claim deductions for expenses related to his Uber income. Given that Elon’s car is also used for private purposes, he can only claim expenses based on the proportion that the car is used for Uber purposes.
The list of deductions available to Elon that relate to his Uber driving include:
• any amounts paid to Uber as commissions, licensing or service fees
• costs for water and mints for Uber Riders
• vehicle registration and insurance
• mobile phone bills, and
• costs of cleaning, servicing and repairing the vehicle.
Deductions that are considered private and not deductible include:
• driver’s licence
• any fines such as parking or speeding
• clothing and
• personal meals.
The largest of Elon’s expenses that can be claimed as deductions will relate to the car usage costs.
The ATO permits two methods to calculate car expenses based on the substantiation required to support these claims, ie the cents per kilometre method and the log book method.
Under the cents per kilometre method Elon can claim kilometres travel at 66c per kilometre for distances up to 5,000 km. This method incorporates all car expenses including petrol, servicing and depreciation.
Using the log book method Elon must maintain a log book for a minimum period of 12 weeks to determine the business use percentage for the car expenses. This log book must be updated every five years. Elon can then claim all expenses that relate to the operation of the car, at his percentage of business use (which is based on an estimate of business kilometres travelled using the log book and other factors.
As an Uber driver Elon will have GST obligations. Although, enterprises with a turnover of less than $75,000 are not normally required to register for GST, taxi and limousine operators are required to be registered, regardless of turnover. A person who is carrying on an enterprise is required to be registered for GST purposes if, in carrying on the enterprise, that person supplies taxi travel. “Taxi travel” is defined as meaning “travel that involves transporting passengers, by taxi or limousine, for fares”.
In a recent tax case, Uber BV v FC of T 2017 ATC, the courts confirmed that providing uberX services to passengers (uberX Riders), uberX drivers (uberX Partners) are a supply of “taxi travel”.
Accordingly, Elon must be registered for GST and must charge GST on all fares. Elon can also claim the GST back on any expenses that he has incurred.
This means Elon must apply for an ABN and register for GST. There are no application fees for this process.
These registrations must be in place within 28 days from the end of the first quarter that Elon started receiving income from his Uber activities. This is the deadline for Elon to lodge his first Business Activity Statement (BAS).
For example, if Elon started receiving Uber income on 23 July 2017, then he must lodge his first BAS by 28 October 2017. This BAS includes the net GST up until 30 September 2017.
To manage his ongoing compliance, Elon should consider setting up a separate bank account for his Uber activities with all the income and expenses debited and credited through that account. This will assist him to keep a record of all expenses as well as income, and manage his quarterly GST liability.
As Elon is now deriving income that is not subject to PAYG withholding, it is possible that Elon may become liable to pay PAYG instalments. This will apply if Elon is not entitled to the senior and pensioners’ tax offset, the balance of his assessment is $1,000 or more, and his business and investment income is $4,000 or more.
Martin van der Saag
T: 02 9984 7774
T: 02 9984 7774