Edited version of your written advice

Authorisation Number: 1013103360844

Date of advice: 31 January 2017

Ruling

Subject: GST enterprise and ride-source driving

Question 1

Are you required to be registered for GST?

Answer

Yes, you are required to be registered for GST.

Relevant facts and circumstances

1. You are a retiree and pensioner. You are neither currently registered for GST nor do you have an Australian Business Number (ABN).

2. Your income included a non-taxable State superannuation pension and a small amount of income from sources other than your ride-sourcing driving activities.

3. You started to drive for a ride-sourcing entity.

4. You drove for a ride-sourcing entity on four occasions and travelled a total of under 500 kilometres.

5. You advised that for the four trips you made $x after deducting the ride-sourcing entity's commission. After factoring in vehicle expenses and telephone, you explained that you would make no more than the net profit you made. You do not anticipate making more profit per annum than the net profit that you made. You further explained that this would be tax-free as you would not exceed the income tax-free threshold of $18,000.

6. Acting on your behalf, the ride-sourcing entity issues invoices to passengers for your services. Customers must pay for your services by credit card.

7. Your service is widely advertised and marketed to the public by the ride-sourcing entity as part of the arrangement you have with the ride-sourcing entity which you consent to and pay for.

8. You transport passengers at their direction to a destination that is not known when you accept a ride request (i.e. you are not carrying on a carpooling-type activity in which you agree to transport passengers along a route you would otherwise be travelling).

9. You must accept a certain percentage of ride requests from the public while your ride-sourcing app is switched on, for example you cannot choose to transport friends or provide the service for no charge.

10. In relation to your motive for ride-sourcing driving, you advised that you do not need the money to survive and do it for the social interaction.

11. You advised that you do not intend to drive more than once a month (usually on big event days which are often Public Holidays). You stated that if you are required to register for GST, you doubt that you will continue to drive with the ride-sourcing entity as you do not consider it would be worth the effort.

12. You also advised that you suffer from a medical condition and cannot drive for more than four hours at a time due to the medical condition.

13. You contend your actions are not those of someone undertaking a business enterprise as required for ABN registration. You believe that your ride-sourcing activity is not sufficiently frequent or profitable to amount to a business and/or enterprise for GST purposes.

14. We requested further information from you in writing in relation to your profit, intention to profit and reasonable expectation to profit. We requested that you review and confirm the original profit figures.

15. You advised:

i) You heard about ride-sourcing driving and attended an induction session where the ride-sourcing entity inspected your car. You had to pay for a driver history (you think the ride-sourcing entity may have reimbursed you for this cost). A police check was done which took 48 hours (you don't recall whether you or the ride-sourcing entity covered this cost). The ride-sourcing entity advised you that you could download the app within 48 hours of the meeting which you did. However, as your existing phone was incompatible, you purchased a phone from a family member.

ii) The ride-sourcing entity inspected your car prior to you commencing driving and told you that you needed new tyres.

iii) You were not required and did you purchase any special or additional insurance. You advised that were you to start driving more frequently you would upgrade your insurance policy as you doubted whether your current standard policy would cover you in an accident.

iv) The ride-sourcing entity requested that you obtain an authority to drive from the relevant State government department. You filled out the form and submitted it but you have not received a reply. The ride-sourcing entity advised you not to pester the Department as they were processing many driver requests. They advised you that if you did not have the authority you would not be able to drive. You were on holidays and have not logged in to the ride-sourcing app yet and so you are not sure whether you are still authorised to drive for the ride-sourcing entity.

v) Otherwise, you did not get any special driver's license in order to drive for the ride-sourcing entity and/or carry passengers.

vi) Whilst you intended to make a profit upon commencement, based on the number of hours you were and are prepared to work, you now realise that a profit is highly unlikely and you consider that you have no reasonable expectation to profit. The fact that you continue to drive in the absence of an expectation to profit supports your contention that your driving is a hobby.

vii) You explained that the ride-sourcing app alerts you when there is a surge in the tariff.

viii) You advised that you do not recall entering into any written agreements with the ride-sourcing entity and you do not have a copy of any written agreement.

16. In your written correspondence, you stated that in a four (4) month period, you drove for the ride-sourcing entity on another two occasions. You provided further information in relation to profitability:

Using the cents per kilometre method of calculating your vehicle expenses, you calculated your profit from ride-sourcing driving for the financial year to be:

Gross fees from ride-sourcing driving $a

Less Commission @x% <$b>

Running costs 482km x .66c <$c>

Profit $d

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5.

Reasons for decision

Summary:

Yes, you are required to be registered for GST because your ride-source driving activities amount to carrying on an enterprise of 'taxi travel' for GST purposes. You are required to register for GST regardless of your turnover.

Detailed reasoning:

You are required to be registered under the GST Act if:

a) you are carrying on an enterprise, and

b) your GST turnover meets the registration turnover threshold.

Does your GST turnover meet the registration turnover threshold?

If you are a for-profit entity your registration turnover threshold is usually $75,000.

However, if you provide ride-sourcing services, you are providing taxi travel. This is because you make a car available for public hire and use it to transport passengers for a fare.

Under GST law (section 144-5 of the GST Act), if you carry on an enterprise and provide taxi travel services in that enterprise, you are required to be registered for GST regardless of your turnover.

Are you carrying on an enterprise?

The term 'enterprise' is defined in section 9-20 of the GST Act to relevantly include an activity, or series of activities, done:

● in the form of a business, or

● in the form of an adventure or concern in the nature of trade.

However, the term does not include an activity, or series of activities, done:

● as a private recreational pursuit or hobby (see paragraph 9-20(2)(b) of the GST Act), or

● by an individual without a reasonable expectation of profit or gain (see paragraph 9-20(2)(c) of the GST Act).

Are your driving activities done in the form of a business?

An enterprise includes an activity, or series of activities, done in the form of a business. The phrase 'in the form of a business' is based on the concept of a business. The use of the phrase 'in the form of' indicates a wider meaning than the word 'business' on its own to extend the reach of 'enterprise' to those activities which are in the form of a business, but would not satisfy the ordinary meaning of 'business' (see McKerracher J in FCT v. Swansea Services Pty Ltd at paragraph 99).

Section 195-1 of the GST Act defines 'business' to include any profession, trade, employment vocation or calling, but does not include occupation as an employee. This is the same as the definition of 'business' in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936), and section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

As the definition of 'business' is identical in the GST Act and the ITAAs, it is interpreted in a similar way. The meaning of 'business' is considered in Taxation Ruling TR 97/11. Although TR 97/11 deals with carrying on a primary production business, the principles discussed in that Ruling apply to any business.

Indicators of a business

TR 97/11 explains the main indicators of carrying on a business. Some of the indicators are:

a) a significant commercial activity

b) a purpose and intention of the taxpayer to engage in commercial activity

c) an intention to make a profit from the activity

d) the activity is or will be profitable

e) the recurrent or regular nature of the activity

f) the activity is carried on in a similar manner to that of other businesses in the same or similar trade

g) activity is systematic, organised and carried on in a businesslike manner and records are kept

h) the activities are of a reasonable size and scale

i) a business plan exists

j) commercial sales of product, and

k) the entity has relevant knowledge or skill.

There is no single test to determine whether a business is being carried on. In paragraph 12 of TR 97/11 we explain that 'whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators'.

Commercial activity

In respect of the requirement for a significant commercial activity, including your purpose and intention to engage in a commercial activity, you:

● entered an agreement with the ride-sourcing entity, a commercial entity, under which you agreed to be a driver

● transport passengers at their direction to a destination that is not known when you accept a ride request

● are not carrying on a carpooling-type activity in which you agree to transport passengers along a route you would otherwise be travelling

● must accept a certain percentage of ride requests from the general public while your ride-sourcing app is switched on, for example you cannot choose to transport friends or provide the service for no charge

● charge a commercial rate for your transportation service — being a rate set by the ride-sourcing entity, which is the same as the rate charged by other ride-sourcing drivers

● provide your transportation service in materially the same manner as other ride-sourcing drivers; and in a similar manner as a taxi driver or other business providing point-to-point transport services; and

● rely on the ride-sourcing entity and pay them (your commission payment), as part of your arrangement with them and that of other ride-sourcing drivers, to advertise and market your services to the general public.

These facts support the view that your ride-sourcing driving activities demonstrate a significant commercial activity, including a purpose and intention to engage in commercial activity.

Profitability

For the financial year, using the cents per kilometre method, you made a profit of $x. You did not keep a logbook for the year. Further, you explained that you will continue to ride-source drive in the same manner as in the financial year that is, undertaking approximately one trip per month.

In respect of the requirement that there be an intention to make a profit from the activity, case law in Australia and elsewhere indicates that on its ordinary meaning, a 'business' is an activity which is carried on with an intention to profit. In Smith v. Anderson (cited by the High Court of Australia in Murry) the Court of Appeal (UK) said:

…anything which occupies the time and attention and labour of a man for the purpose of profit is business [Emphasis added]

In Davsa Forty-Ninth Pty Ltd, the AAT stated:

Prospective profitability, and/or a strong likelihood of it, is a positive indicator of the most important criterion for whether someone is carrying on a business (and by extension an enterprise), namely intention to make profits. [Emphasis added]

However, the profit motive need not be the 'the sole motive, or even necessarily the dominant motive.' If a taxpayer is motivated by reasons other than profit, this would not of itself lead to the conclusion that the taxpayer is not carrying on a business. In Stone, the High Court found that the taxpayer's javelin throwing-related activities amounted to a business despite the taxpayer's contention that she did not carry on the activities for money and was instead motivated by other factors (such as the desire to represent Australia at the Olympics). The plurality (Gleeson CJ, Gummow, Hayne and Heydon JJ) said:

No doubt it is necessary to take account of the taxpayer's statement that she did not throw javelins for money. There are, however, two things to say about that statement. First, it is not to be understood as some failure by the taxpayer to recognise that success in her sport would bring financial reward. … Secondly … If a taxpayer has a view to profit, the conclusion that the taxpayer is engaged in business may easily be reached. If a taxpayer's motives are idealistic rather than mercenary, the conclusion that the taxpayer is engaged in a business may still be reached. The "wide survey and exact scrutiny" of a taxpayer's activities that must be undertaken may reveal, as it does in this case, that the taxpayer's activities constituted the carrying on of a business [Emphasis added].

You also advised that you do not rely on the income from ride-source driving as you have a non-taxable state superannuation pension and from other income from non-driving sources. You state that you do not drive for charity but you are not motivated by profit either. Arguably, this indicates that you did not intend to make a loss from ride-source driving.

Your profit analysis for the financial year indicates that you have effectively consented to charging your customers a rate which would most likely exceed the costs to you of providing your service on any given occasion. You also advised that you liked to drive on busy event days. During peak times, the ride-sourcing app would alert you that there was a tariff surge.

These facts support the conclusion that you: intended to make a profit from your driving activities; had a reasonable expectation to make a profit; and did in fact make a profit using the ride-sourcing entity's business model in the financial year. The business model provides the conditions for a profit to be made and you chose to enter into that arrangement, undertake the activities and make a profit. The fact that you may have possessed another motivation to undertake driving does not preclude a finding that your activities constituted carrying on a business.

Remaining indicators of 'business'

Under the arrangement with the ride-sourcing entity your activities are systematic, planned and extensively advertised. They take the payments of fares from passengers by credit card and issues passengers with tax invoices for your services on your behalf. In this way, records are kept and you make commercial sales.

A business plan exists through the business model provided to you under the arrangement, and you possess the relevant knowledge and skills to conduct the business. You have a business strategy of predominantly driving on high frequency days when demand is high and tariffs are likely to surge.

You explained that your intention was for social interaction, and more akin to a recreational pursuit or hobby. The definition of 'enterprise' excludes activities that are a private recreational pursuit or hobby (see paragraph 9-20(2(b) of the GST Act).

Are your activities excluded from being in the form of a business because they are a private recreational pursuit or hobby?

TR 97/11 explains that often it will be the case that there is a hobby when:

● it is evident that the taxpayer does not intend to make a profit from the activity

● losses are incurred because the activity is motivated by personal pleasure and not to make a profit and there is no plan in place to show how a profit can be made

● the transaction is isolated and there is no repetition or regularity of sales

● any activity is not carried on in the same manner as a normal, ordinary business activity

● there is no system to allow a profit to be produced in the conduct of the activity

● the activity is carried on a small scale

● there is an intention by the taxpayer to carry on a hobby, a recreation or a sport rather than a business; and

● any produce is sold to friends and relatives and not to the public at large.

For the reasons detailed above, we conclude that you had a reasonable expectation to make a profit from driving in the financial year, and in fact did make a profit. Your driving is not an isolated transaction - you explained that you intend to drive approximately once per month, indicating some repetition and regularity of sales. Although your activities have been conducted on a small scale and you have explained that you intend for those activities to be a hobby or recreation for social interaction, you also explained that you do not drive for charity.

Through the business model your activities are systematic, planned and extensively advertised to ensure a customer base. Your profits do not come about by chance and could not properly be described as an unplanned, unintentional by-product of pursuing a hobby.

Your driving activities do not amount to a hobby or recreational pursuit and are not excluded from 'enterprise' for this reason.

The definition of 'enterprise' also excludes activities that have no reasonable expectation of profit or gain (see paragraph 9-20(2(a) of the GST Act).

Are your activities excluded from being in the form of a business because you have no reasonable expectation of profit?

Your driving activities have produced a profit, albeit small. You intend to continue operating in the same manner and with the same frequency into the future. Therefore, we consider your activities do have a reasonable expectation of making future profit or gain.

On balance, your activities satisfy the majority of the business indicators in TR 97/11 and do not meet the specific exclusions to enterprise in section 9-20 of the GST Act.

In addition to things done 'in the form of a business' the definition of 'enterprise' in the GST Act, also includes activities done 'in the form of an adventure or concern in the nature of trade'.

Are your activities done in the form of an 'adventure or concern in the nature of trade'?

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) states at paragraph 234:

Ordinarily, the term 'business' would encompass trade engaged in on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal [Emphasis added].

Your driving activities have the 'characteristics of a business deal'. The activities satisfy the definition of enterprise even though they may not satisfy all of the indicators of a 'business' for income tax purposes.

Further, although your activities are carried out on a relatively small scale (driving approximately once per month) this feature is not uncommon in the ride-sourcing industry (app based point-to-point passenger transport). The small scale activities may reflect that driving is a secondary source of income.

Conclusion

The facts indicate that your activities satisfy the majority of the indicators of a business and are done 'in the form of a business or adventure or concern in the nature of trade'. None of the specific exclusions in section 9-20 of the GST Act apply.

Therefore, you are carrying on an enterprise of providing taxi travel and you are required to be registered for GST, irrespective of your turnover.