Uber vs Taxis

While Uber services are being more and more popular in our life, the tax issues related to Uber services have also raised people attention. There are doubts about the GST treatment for service providers and the FBT treatment for employers. This article will discuss related tax policies, issues and what are the treatment for each of these tax policies.

GST Implications

To start with, S.144-5(1) (GST Act) identified all ride-sourcing arrangements constitute ‘taxi travel’ for GST purpose and is subjected to GST. As a result, ride-sourcing drivers must have an ABN and be registered for GST. They should also pay GST on the full fare (not the net amount received after the deduction of any fees or commissions), lodge business activity statements (BAS) on either monthly or quarterly basis and know how to issue a tax invoices, noted that the usual turnover threshold of $75,000 does not apply.

The issue here is that whether Uber service is a supply of ‘taxi travel’ under GST. According to Uber B.V. v FCT [2017] FCA 110, the Federal Court made a declaratory order to the effect that the uberX service supplied by the Uber driver constituted ‘taxi travel’ within the meanings of S.144-5(1) of the GST Act. Taxi travel should be construed as a whole, rather than focusing on the how to word ‘Taxi’ is identified and the particular features taxi should have regulated by the States and Territories. As a result, Uber services is considered as a supply of ‘taxi travel’ and is subjected to GST. This decision is also known as ‘the Uber decision’.

Income Tax Implications

Due to the Uber decision, ride-sourcing service providers will also need to include ride-sourcing income in their income tax return and are only allowed to claim deductions that are related to transporting passengers for a fare. This will include apportioning car expenses limited to the time actually providing a ride-sourcing services. Moreover, accurate records of all income and expenses should be kept for tax purpose.

To make it clear, here comes an example. The full fare of a ride-sourcing service is $110 and the commission taken by the ride-sourcing facilitator is $22. The GST amount will be $10 based on the full fare. Since there is a commission taken, you are entitled to claim an input tax credit of $2 and a tax deduction of $20.

FBT Treatment

Section 58Z of the FBT Assessment Act 1986 provides employers with an exemption for taxi travel under the following circumstances:

1. Any benefit arising from taxi travel by an employee is an exempt benefit if the travel is a single taxi trip beginning or ending at the employee’s place work
2. Any benefit arising from taxi travel by an employee is an exempt benefit if the travel: (a).Is as a result of sickness of, or injury to, the employee; and (b).Is the whole or a part of the journey directly between any of the following: The employee’s place of work; or The employee’s place of residence; Any other place that it is necessary, or appropriate, for the employee to go as a result of the sickness or injury

After the Uber decision, people are considering whether the meaning of ‘taxi travel’ for GST purposes also applied for the purposes of the FBT exemption for ‘taxi travel’. On 27 September 2017, the ATO issued a discussion paper titled TDP 2017/2: Fringe Benefits Tax – Definition of Taxi, stated their preliminary view of the meaning of ‘taxi’ should be ‘a vehicle that is available for hire by the public and is licensed to transport a passenger at his or her direction for the payment of a fare that will often, but not always, be calculated by reference to a taximeter’.

In early July 2019, the ATO clarified a different view, saying that the FBT exemption for taxi travel does not extend to ride-sourcing services provided in a vehicle that is not licensed to operate as a taxi by the relevant State or Territory.

Although the FBT exemption does not apply when employee travels using a ride-sourcing services, other FBT exemptions may apply such as minor benefits exemption, otherwise deductible rule and employee contributions.

To conclude, ride-sourcing services are classified as ‘taxi travel’ and subjected to GST under GST Act but not exemptible for ‘taxi travel’ under FBT. Although they are using similar terms, the meaning of each term may be significantly different among different tax law, which may lead to confusion. Therefore, people should pay extra attention when duel with these issues to avoid any mistake.

Reference

https://www.ato.gov.au/General/The-sharing-economy-and-tax/Ride-sourcing/

https://www.ato.gov.au/general/the-sharing-economy-and-tax/ride-sourcing/income-and-deductions-for-ride-sourcing/

https://www.ato.gov.au/General/The-sharing-economy-and-tax/Ride-sourcing/Reporting-and-paying-GST/

Disclaimer

This content is intended for general information in summary form on tax and legal matters at the time of first publication and is not intended to provide, and should not be relied upon in place of appropriate professional advice.  Please consult your tax, legal and accounting advisors before acting or relying on any content provided.