• The sharing economy and tax

    There are multiple sharing economy websites and apps operating in Australia. The people who provide goods or services through any of them need to consider how goods and services tax (GST) and income tax apply to their earnings.

    What is the sharing economy?

    The sharing economy connects buyers (users) and sellers (providers) through a facilitator who usually operates an app or a website.

    Popular sharing economy services include:

    • renting out a room or a whole house or unit for a short-time basis
    • providing taxi travel services (called 'ride-sourcing') for a fare
    • providing personal services, such as creative or professional services like graphic design, creating websites, or odd jobs like deliveries and furniture assembly
    • renting out a car parking space.

    See also:

    Watch:

     

    The sharing economy and tax

    If you are involved in the sharing economy, you need to consider:

    • if you are carrying on an enterprise    
      • if you need an ABN
      • if you need to register for GST and lodge activity statements
       
    • if the price of the goods or services you provide includes GST
    • if and when you need to provide tax invoices for your sales
    • if you need to declare your income in your income tax return
    • what GST credits and income tax deductions you can claim for your expenses related to earning your income
    • how all your sharing economy activities added together impact your GST and income tax obligations.

    If you carry on an enterprise of providing ride-sourcing services, under the GST law you need an ABN, you need to be registered for GST, and you need to account for GST on the full amount of every fare regardless of how much you earn. You can also claim the business proportion of your input tax credits. The GST registration threshold does not apply to ride-sourcing services. We also consider that you are running a small business as a sole trader, so you need to declare all the income earned from providing ride-sourcing services and you can claim the expenses related to providing the services.

    If you are selling goods or performing a service as a spare-time activity or pastime you pursue for pleasure or recreation, then you may just be partaking in a hobby which does not have tax or reporting obligations.

    There are different tax obligations depending on what goods or services you are providing. Common sharing economy services include:

    See also:

    Providing goods and services across multiple websites or apps

    You also need to consider how all your sharing economy activities added together impact your tax obligations.

    If you are registered for GST because you are already carrying on an enterprise you must account for GST on all the sharing economy goods and services you provide that are subject to GST. For example, if you have an enterprise that provides ride-sourcing services, and have to get an ABN and register for GST regardless of your turnover, you would also have to account for GST on a car park you rented out.

    If you are providing goods and services across multiple websites or apps, or through other enterprises outside of the sharing economy, you need to get an ABN and register for GST when your total turnover for all of your activities together is, or is expected to be, $75,000 or more per year. When working out your turnover, you can exclude income from renting out a room or your whole house or residential unit.

    See also:

    Record keeping

    Regardless of how much you earn or the reasons for providing the goods or service, you should keep records of income and expenses so that you can keep track of your activities and assist with tax obligations when they arise. You may intend to provide goods or services as a hobby or recreational pursuit, but your level of activity over the whole year may mean that you are in fact running a business and need to comply with income tax and GST obligations.

    See also:

    I am renting out all or part of my house through the sharing economy

    When you rent out all or part of your residential house or unit through a sharing economy website or app you:

    • need to keep records of all income earned and declare it in your income tax return
    • need to keep records of expenses you can claim as deductions
    • don't need to pay GST on amounts of residential rent you earn.

    If you are carrying on an enterprise in which you rent out commercial residential premises you will have different income tax and GST obligations.

    Do I need to pay income tax on amounts received from renting out a room or whole house or unit?

    Yes. If you rent out all or part of your house or unit, the payments you receive are assessable income. This means:

    • you must declare the income in your tax return
    • you can claim deductions for associated expenses.

    You declare the income, and can claim associated expenses, for the income year as rental income in your income tax return.

    You may also need to pay capital gains tax (CGT) when you sell the house or unit. Even if the house or unit is your main residence, renting out any part of it usually means losing part of your CGT main residence exemption.

    See also:

    What deductions can I claim?

    The types of expenses that you can claim for renting out all or part of your house or unit using a sharing economy website or app are the same as if you had a rental property. Common expenses you can claim include:

    • 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).

    Whether all or part of the expense can be claimed will depend on:

    • the proportion of the year you rent out the house or property
    • the portion of the property you have rented out (for example, a room or the whole property)
    • whether you use the home or part of the house for personal use when it is not rented out.

    See also:

    Claiming deductions when only renting out part of the house

    If you are only renting part of your home, for example a single room, you can only claim expenses related to renting out that part of the house. This means you cannot claim the total amount of the expenses – you need to apportion the expenses.

    As a general guide, you should apportion expenses on a floor-area basis based on the area solely occupied by the renter (user), and add that to a reasonable amount based on their access to common areas.

    You can only claim expenses for when the room was available for rent. If you use the room in any capacity, for example for storage or as an office when you do not have guests staying, then you cannot claim deductions for expenses when the room is not occupied.

    You can claim 100% of expenses that are only related to renting out the room to paying guests. For example, you can claim the whole commission or facilitator fee charged by the sharing economy website or app.

    Example: renting out part of your unit or house

    Jane has a two-bedroom unit with two bathrooms in a popular downtown area. Jane lives alone and only uses her spare room as an occasional home office, for storage and when she has guests. Jane mainly uses the ensuite bathroom. The second bathroom is accessible from the main areas and mainly used by visitors. Jane decides to rent out the spare room on a sharing economy website to earn extra income.

    The unit is 80 square metres in total. The spare room being rented is 10 square metres, and when paying guests come to stay Jane removes all excess items from the room and does not access the area.

    Jane also gives paying guests access to common areas including the second bathroom, kitchen, living area and balcony, which total 50 square metres. For the period guests are staying and have access to the common areas, Jane can claim 50% of associated costs.

    Jane also offers her guests access to her wi-fi for free.

    Jane had the room available and occupied 150 days in the year. When she is not renting out the room she uses it as storage and a home office. Claiming Rental Deduction

    Jane calculates what she can claim based on the following questions:

    • How big is the room? (in her case, 10 square metres)
    • How big is the house? (in her case, 80 square metres)
    • How big are the common areas? (in her case, 50 square metres)
    • How many days is the room rented out? (in her case, 150 days).

    She works out she can claim 17.97% of her general expenses after adding the two calculations together:

    • room occupancy – (10/80 x 150/365) x 100 = 5.13%
    • common areas – ((50/80 x 150/365) x 50%) x 100 = 12.84%.

    Jane can claim a deduction of 17.97% of her general expenses like electricity, interest on her mortgage, internet expenses, rates and body corporate fees.

    She can claim 100% of the expenses associated solely with renting out the room like the facilitator’s commission or administration fee.

    End of example

    See also:

    Claiming deductions when renting out your main residence on an occasional basis

    If you rent out your whole house or unit on an occasional basis through the sharing economy, you can claim the proportion of expenses related to the time when you were not at the house or unit.

    This may apply where you rent out the house or unit when you are away for a period of time, or you vacate the house or unit to allow paying guests to stay.

    In this case, the proportion of total expenses you can claim reflect the proportion of the financial year the house or unit was rented out.

    You can claim 100% of any expenses that are only related to renting out the house or unit to paying guests. For example, you can claim the whole commission or facilitator fee charged by the sharing economy provider.

    Example: renting out your main residence on an occasional basis

    John and Mary live in a one-bedroom unit in the city which they list as available for rent on a sharing economy app for paying guests. When John and Mary accept a booking for their unit they go and stay with Mary’s parents.

    Because the unit is John and Mary’s main residence, and they only vacate the place when they have a booking, they can only claim expenses on a proportional basis.

    Last year John and Mary rented out the unit for 100 nights. This means John and Mary can claim 27.93% of expenses (100/365 x 100).

    John and Mary can claim 100% of the expenses associated solely to renting out the unit like the facilitator’s commission or administration fee.

    End of example

    Claiming deductions when renting out an investment property

    If you have an investment property that you do not use at all for private purposes and you have it advertised for the whole year as available for rent on one or more sharing economy websites or apps then you can claim 100% of the expenses associated with the property.

    If you have an investment property that you use for personal use, like a holiday home, you claim expenses based on the proportion of the financial year the house or unit is rented out or advertised for rent.

    See also:

    How to avoid a tax debt

    If you are earning more than $4,000 a year from renting out a room or a whole house or unit, or expect to earn more than $4,000 a year, you could consider entering the pay as you go instalment (PAYGI) system voluntarily. This will stop you getting a large tax bill at the end of the year. The PAYGI system allows you to pay amounts every three months (quarterly) to help cover any income tax you may need to pay on your sharing economy income.

    If you pay too much during the year, you will get the money back when you do your tax return.

    If you don’t pay enough during the year, you pay the difference when you do your tax return (but it will be less than if you didn’t pay anything at all).

    See also:

    What is capital gains tax and how may it apply to me when I rent out all or part of my house or unit?

    A capital gain is where you sell an asset (like a house) and make a profit. Any gain you make is assessable income and you must include that amount in your income tax return for the year that you make that profit. The amount of tax that you pay on a capital gain will depend on a range of factors including when you bought and sold the asset, your other taxable income, and how you use the asset. 

    Profit from the sale of your main residence is usually exempt from CGT. However, if you use the main residence to earn income, for example by renting out a room on a sharing economy platform, you are no longer eligible for the full CGT exemption on a main residence. You will lose a proportion of your main residence exemption based on the proportion of your floor area rented out, and the length of time it was rented.

    There are some circumstances in which you will not lose the CGT main residence exemption, for example where you move completely out of your main residence to live in another home for a period of time.

    If you are using a sharing economy platform to rent out all or part of a property that you do not own, CGT does not apply to you. However, renting out a property you do not own may require approval, and may incur fees or charges. You should check your local council and state or territory regulations to understand your obligations. 

    See also:

    If I am renting out a room or a whole house or unit, do I need to pay GST?

    No. GST does not apply to residential rent. You are not liable for GST on the rent you charge, and you cannot claim any GST credits for associated costs.

    This applies even if you carry on another GST registered enterprise. For example, if you are a ride-sourcing driver, you do not need to account for GST from the income earned from renting out a room or a house or unit. This is because GST does not apply to residential rent.

    However, you do have to pay GST if you provide accommodation like a hotel room or serviced apartment, a bed and breakfast, or you rent out commercial spaces like a function room or office space. These types of accommodation are subject to GST.

    See also:

    I am providing goods or services to people for a fee through the sharing economy

    When you provide services to people for a fee through the sharing economy that is more than an occasional pastime or a hobby, you:

    • need to keep records of all income earned and declare it in your income tax return
    • need to keep records of expenses you can claim as deductions
    • you may need to register for and pay GST.

    Do I need to get an ABN and register for and pay GST?

    If you are already registered for GST, and you are earning extra money providing services through a sharing economy app or website, you need to account for GST on that extra money through your existing ABN and GST registration.

    If you do not have an ABN or are not registered for GST and you are carrying on an enterprise providing goods and services through a sharing economy app or website, then you will need to get an ABN and register for GST if your turnover is, or is expected to be, $75,000 or more per year.

    Do I need to pay income tax on money that I earn providing goods or services?

    If you are selling goods or performing a service as a spare-time activity or pastime pursued for pleasure or recreation then you may be engaged in a hobby, in which case tax or reporting obligations do not apply.

    If you provide goods or services for payment through a sharing economy website or app where it is more than an occasional pastime or hobby, then the payments you receive are assessable income.

    This means:

    • you must declare the income in your tax return
    • you can claim deductions for associated expenses.

    You declare the income and any associated expenses for the income year in your income tax return.

    See also:

    Am I running a small business providing services?

    The factors that will determine if you are running a small business through the sharing economy include:

    • Have you decided to start a business, what was your intention?
    • Have you started the activity with the intention of making a profit?
    • Does your activity have a commercial character?
    • Is there repetition or regularity to your activity?
    • Is your activity similar to other businesses and how they operate?
    • Does the size scale or permanency of your activity indicate you have a business?
    • Is your activity planned, organised and carried out in a business-like manner?

    While no one factor can be used to work out if you are carrying on a business, taken together they can show if your activity exists as a business for tax purposes.

    Example: determining if you are running a business

    Banjo is a university student and has a van. He has decided that he wants to earn some extra money using a sharing economy site and sets up a profile where he is selling his services as a delivery person or a person who can help with small moves.

    The sharing economy site operates so that clients list the requirements of the job and then the registered providers can bid for the work.

    Banjo actively bids for any work in his area that requires any type of delivery service or help moving goods like furniture and other household belongings. The people hiring Banjo do not pay him directly. Clients pay through the sharing economy website or app and the money is deposited into Banjo’s personal bank account once the person advertising the job confirms that the job was completed in a satisfactory manner.

    Banjo is consistently performing four to eight jobs a week and generally earns $1,000 to $2,000 a week providing delivery or moving services. The amount Banjo is paid per job depends on what is required for each job and there is no consistent amount paid.

    Banjo needs to decide if he is running a business. Banjo looks at our website and answers the following series of questions:

    1. Have you decided to start a business, what was your intention?
      Banjo did not intend to start a business. He has not registered a business name or for GST, and does not have an ABN.
    2. Have you started the activity with the intention of making a profit?
      Yes. Banjo was providing the services with the intention of making a profit.
    3. Does your activity have a commercial character?
      Yes. Banjo would be considered to be operating in a commercial manner because:    
      • Banjo does not know the people that he is providing the service for (they are arm’s length strangers)
      • the interaction is managed through a third party, the sharing economy website. The people hiring Banjo do so to receive a service (delivery or furniture removal)
      • Banjo is bidding for the work (quoting amounts for the service) and using the service reviews on the website to get more business.
       
    4. Is there repetition or regularity to your activity?
      Yes. Banjo is doing jobs at least once a week.
    5. Is your activity similar to other businesses and how they operate?
      Yes. Banjo is providing a delivery and furniture removal service in a manner similar to other commercial delivery services and furniture removal services.
    6. Does the size scale or permanency of your activity indicate you have a business?
      Yes. Banjo is providing services to people on a weekly basis. Banjo bids for the work and arranges to go and do the work in the timely manner during the week or on the weekends. If Banjo did jobs on an infrequent basis, for example one or two small paying jobs once a month, he would not have the scale or permanency of activity that would indicate a business.
    7. Is your activity planned, organised and carried out in a businesslike manner?
      Yes. Banjo’s work is planned as he is bidding for the work that he wants to perform. He does all the work in a professional manner that ensures he is paid and encourages good reviews that help him get more work. Banjo does not have a separate business bank account and he does not provide invoices. In isolation, this fact could indicate that he is not operating in a businesslike manner.

    While Banjo did not intend to start a business, in answering the questions Banjo realises that he is providing delivery and furniture removal services in such a manner that he considered to be running an enterprise.

    Because Banjo is running an enterprise, once Banjo’s annual turnover is, or is expected to be, $75,000 or more a year he will need to register for GST.

    End of example

    What deductions can I claim?

    You can claim deductions that are related to you earning the income. To be able to claim a deduction:

    • you must have spent the money and not been reimbursed
    • the costs must relate to doing your job and must not be a private expense (such as travel from home to the job)
    • you must consider how much of the total expense can be claimed if the expense is for both personal and business use, and
    • you must keep appropriate records to prove your claim.

    Any fees or commission charged by the sharing economy facilitator can be claimed as a deduction.

    Other deductions you can claim will depend on what goods or services you are providing.

    Table of deductions for common sharing economy job types

    To help you understand the items that may be deductible, some common job types are listed below, with links to our rulings about deductions. These deductions apply if you are earning income as an individual or a small business.

    Service types and links to work-related expenses information

    Service type

    Work-related expenses information for

    Removal services

    Truck drivers

    Furniture removalists

    Cleaning services

    Cleaners

    Home maintenance services

    Building and construction employees

    Electricians

    Earthmoving plant operators

    Engineers

    Plumber employees

    Personal training

    Fitness and sporting industry employees

    Business professionals

    Business professionals

    Journalists

    Lawyers

    Educational services (teaching, tutoring)

    Education professionals

    Teachers

    Information technology services

    Information technology professionals

    IT professionals

    Mechanical services

    Mechanical, automotive and electrical tradespersons

    Health and beauty services

    Hairdressers

    Catering services

    Hospitality industry employees

    See also:

    How to avoid a tax debt

    If you are earning more than $4,000 a year, you could consider entering the pay as you go instalment (PAYGI) system voluntarily so you don’t get a large tax bill at the end of the year. The PAYGI system allows you to pay amounts every three months (quarterly) to help cover any income tax you may need to pay on your sharing economy income.

    If you pay too much during the year, you will get the money back when you do your tax return.

    If you don’t pay enough during the year, you pay the difference when you do your tax return (but it will be less than if you didn’t pay anything at all).

    See also:

    Renting out a car parking space

    Do I need to get an ABN and register for GST?

    If you rent out a car parking space it can mean that you are running an enterprise. You will need to get an ABN and register for GST if either:

    • you earn, or are likely to earn, $75,000 or more per year renting out the car parking space or spaces
    • your turnover is, or is likely to be, $75,000 or more a year for all of the goods and services you provide while carrying on a number of enterprises.

    If you already have an existing enterprise for which you are registered for GST, you need to account for GST on amounts received for renting out a car parking space.

    Do I need to pay income tax on amounts received?

    Yes. If you rent out a car parking space, the payments you receive are assessable income. This means:

    • you must declare the income in your tax return
    • you can claim deductions for associated expenses.

    You may also need to pay capital gains tax when you sell the house or unit. Even if the house or unit is your main residence, renting out any part of it usually means losing part of your CGT main residence exemption.

    Example: determining if you need to pay GST

    John is a painter and is registered for GST. He owns a residential unit in a CBD location with a car parking space in the same building. John decides to rent the car parking space out for $330 a week through a facilitator who arranges for people to rent the space periodically. The supply of the car parking space is subject to GST. John will need to include the GST on this rent in his BAS.

    John receives $297 after the facilitator charges John a commission of $33. John must pay GST on the full $330 (that is, $30 GST). If the facilitator is registered for GST, John may claim an input tax credit of $3 for the GST included in the facilitator’s commission.

    John also includes the income, less the amount of GST, so $300 per week, from renting out his car parking space in his income tax return. He can claim a deduction for the fee, less the input tax credit, so $30 per week, charged by the facilitator and may have other deductions such as a percentage of his mortgage.

    End of example

    See also:

      Last modified: 01 Nov 2016QC 45171