Edited version of your written advice

Authorisation Number: 1051461729156

Date of advice: 30 November 2018

Ruling

Subject: Ride sourcing and GST registration

Summary

You are required to be registered for GST because your Uber 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.

Question

Are you required to be registered for goods and services tax (GST) under section 144-5 of the A New Tax System (Goods and Services) Tax Act 1999 (GST Act)?

Answer

Yes, you are required to be registered for GST.

This ruling applies for the following periods:

From 1 November 2016 onwards

The scheme commences on:

1 November 2016

Relevant facts and circumstances

● You are retired.

● You get depressed by staying at home.

● Your doctor suggested you drive to keep you mentally stimulated.

● You considered other options to ride sourcing but they were too much like a having a job.

● Instead, you decided to combine your love of driving with meeting people.

● You began driving for the facilitator a few years ago as a hobby to see if you liked it.

● You operate as an individual.

● You drive a standard sedan.

● You spent approximately $3,500 getting the car roadworthy.

● You only drive for one ride sourcing provider.

● As you view driving as a hobby, you did not register for GST.

● You are not an employee of the facilitator.

● You view it as a pastime because you do it in your spare time; you are combining your love of driving with your love of meeting people; it helps with your mental health; you do not do it for commercial reasons; you do not have a schedule and do it irregularly when bored or lonely sometimes for months at a time; you do not have a business name; you do not have a specific business bank account for the ride sourcing driving; you have not made a profit and do not intend to make a profit as it costs you more than you receive.

● You declared the income you received in your income tax return just in case you were not considered to be engaged in a hobby.

● The income you returned in the 2017-2018 financial year tax return is over $8,000.

● You drove over 50 times to earn that income.

● You stated drove for only 7.4% of the available sessions.

● Your sessions varied in length from 2 hours to 11 hours but your average session length is about 6 hours.

● The statement you provided for the 2017-2018 financial year indicated:

− that you received over $10,000 in gross fares

− your on trip mileage was over 5,000km

− your total fare breakdown added up to $12,000

− you paid more than $3,000 to the facilitator for its services in connecting you with riders

● You think that you will cease with the facilitator in the next 12 months or so if your health is good.

● The longest period of inactivity is 73 days.

● You advised you specifically chose to drive with the facilitator as you can drive as little or as much as you like without any issues.

● You are proud to be rated in the top 10% of drivers in your state with an average rating of well over 4 out of 5.

● You are required to display via removable signage in the rear window showing the booking service or operator details and on the windscreen a vehicle inspection sticker.

● Based on your usage data, it appears that you drive approximately once per week.

● You provided a statutory declaration wherein you swore to certain facts.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 s.9-20, 144-5, 195-1

Reasons for decision

Under section 144-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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.

If you provide ride-sourcing services, you are providing taxi travel for the purposes of Division 144 of the GST Act. This is because you make a car available for public hire and use it to transport passengers for a fare. In Uber BV v FCT [2017] FCA 110 the Federal Court held that ‘taxi travel’ extends to similar services provided by ride sourcing providers.

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 an employee per paragraph 9-20(2)(a) of the GST Act; or

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

● by an individual without a reasonable expectation of profit or gain (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 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‘Income tax: am I carrying on a business of primary production?’ (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:

1) a significant commercial activity

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

3) an intention to make a profit from the activity

4) the activity is or will be profitable

5) the recurrent or regular nature of the activity

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

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

8) the activities are of a reasonable size and scale

9) a business plan exists

10) commercial sales of product, and

11) the entity has relevant knowledge or skill.

TR 97/11 sets out some important considerations related to these factors:

a) There is no single test to determine whether a business is being carried on. In paragraph 12 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'.

b) A taxpayer need not derive all their income from the activity. It is only necessary that the activity amounts to a carrying on of a business: paragraph 15. It is important to remember the point made earlier that in this assessment for GST purposes, ‘enterprise’ is defined to be somewhat broader to be “in the form of a business” [emphasis added] per subsection 9-20(1)(a) of the GST Act.

c) The factors are not individually determinative and must be considered together, and the factors do overlap: paragraph 15.

d) In paragraph 17, when considering all of the facts in the case, “where an overall profit motive appears absent and the activity does not look like it will ever produce a profit, it is unlikely that the activity will amount to a business [original emphasis].”

e) Items 9, 10 and 11 listed above are factors to support the main items being items 1-8: paragraph 18.

f) When determining the indicators of a business the test is applied subjectively and objectively as the nature and extent of the activities under review and also the purpose of the taxpayer and the eventual assessment is based on the “large or general impression gained”: paragraph 23.

The factors in detail

The question whether there is significant commercial activity is closely linked to other factors of size and scale, repetition and regularity and the profit indicators: paragraph 29.

In respect of the requirement for a significant commercial activity, including your purpose and intention to engage in a commercial activity size and repetition factors, you have taken a number of significant actions that enabled you to become a driver.

You entered a contractual agreement with your facilitator, a commercial entity. As part of that process you agreed to be a driver and to take on all rights and obligations of doing so. Under that subcontracting arrangement you needed to show that you were physically and mentally fit to do so, and that your vehicle was in satisfactory working order to drive passengers to a commercial standard. This reflects the factor that there are commercial sales of (in this case) services.

As part of the contractual arrangement you are required to transport passengers at the facilitator’s direction to a destination that is not known when you accept a ride request. Passengers also judge your driving skills and your relationship as a contractor depends on that skill because you will be removed if you are not driving in a professional manner.

You are not carrying on a carpooling type activity in which you agree to transport passengers along a route you would otherwise be travelling which distinguishes your activities from non-commercial ones.

As part of the commercial arrangement you have with the facilitator you must accept a certain percentage of ride requests from the general public while your application is switched on, for example you cannot choose to transport friends or provide the service for no charge.

The services you provide are in return for consideration charged at a commercial rate for your transportation service. This rate is charged not on the basis of what you think is fair for engaging in a hobby, it is at a rate set by the facilitator, and it is the same as the rate that all other drivers must charge. This overlaps with the factor that the activity is carried on in a similar manner to that of other businesses in the same or similar trade.

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

The consideration from the customers is paid directly to a commercial entity and as part of this arrangement you pay them a commission or service fee (the fee) for providing you with leads for work. The fee also applies to other drivers and covers services the facilitator provides you with including advertising and marketing of your services to the general public, as part of the facilitator’s brand.

When you log on to the application platform you are required to display relevant signage in your rear window as required by state regulation. This requirement only applies to drivers conducting a commercial driving activity.

You also are required to pay for commercial compulsory third party insurance which is only required for commercial drivers.

Given the onerous requirements for you to become a ride sourcing driver, it indicates that you do have an intention to engage in commercial activity rather than conducting driving as a hobby.

There is considerable repetition and scale of activity based on examination of your usage data received from the facilitator, covering a period from your first drive in 2016 to 2018.

Systematic and businesslike record keeping is another factor to consider. You have kept records and indeed recorded them in your tax return for the 2017-2018 financial year. You kept expense records, calculated depreciation on your vehicle and kept track of the income. As a result of tallying those items you stated you recorded a loss. If an activity is a hobby a reasonable person would not generally keep such accurate records of income and expenses or worry about including them in their income tax returns. If you recorded the income as ordinary income, it could be concluded that you have at some time turned your mind to the prospect that your activities amount to more than a hobby. It is expected that as the definition of enterprise is wider than business you should have also registered for GST and remitted same. You pointed out that you also keep records of other hobbies but these are not reflected in your current tax return.

Profitability is also a factor to consider when determining if an entity is carrying on a business. Based on the usage data referred to above objectively profit is a likely outcome over time, the fact that you made a loss in one year does not indicate that there is no intention to profit or that the profit is unlikely over time.

The analysis of the factors above, on balance, support the view that your driving activities demonstrate a significant commercial activity and the majority of the 11 indicators in TR 97/11 are present. In this regard, we consider the activities you conduct are sufficiently businesslike or in the form of a business. The conclusion is not affected by the fact that the facilitators do much of the activities on behalf of drivers such as advertising, record keeping and issuing invoices.

As a result, given that on balance of the factors, we consider that the requirements under TR 97/11 are met the requirements for enterprise under section 9-20 of the GST Act would also be met. However, under the definition of enterprise in section 9-20 of the GST Act you will not be carrying on an enterprise if:

● you are an employee¹; or

● you are an individual without a reasonable expectation of profit or gain;²

● you are providing ride-sourcing services as a private recreational pursuit or hobby;³

Are you an employee?

We do not consider paragraph 9-20(2)(a) applies in your case base on the facts.

No reasonable expectation of profit or gain

If drivers don’t have a reasonable expectation of profit or gain at the time of commencement, they are not carrying on an enterprise – paragraph 9-20(2)(c) of the GST Act makes this factor determinative for individuals. In this respect, the GST ‘enterprise’ test differs from the income tax ‘business’ test, where profit-making intention is a particularly important indicator but is not determinative in itself.

Although this is an objective test, as explained in MT 2006/1, the determination of whether there is a reasonable expectation is not solely based on the subjective view of the individual concerned.⁴

However, these expectations must be objectively reasonable. Courts have noted that ‘the meaning of words such as “reasonable expectation” depends upon the context in which they appear’⁵ and have warned against paraphrasing the words or requiring a specific probability.⁶ Nevertheless, courts have described the ordinary meaning of ‘reasonable expectation’ as follows:

‘more than a possibility, risk or chance of the event occurring’⁷

‘more than a possibility … a prediction [that is] sufficiently reliable for it to be regarded as reasonable’⁸

the word “reasonable” is used in contradistinction to that which is “irrational, absurd or ridiculous”. The word ‘expectation’ requires that the hypothesis be one which proceeds beyond the level of a mere possibility to become that which is the expected outcome. If it were necessary to substitute one ordinary English phrase for another, it might be said that it requires consideration of the question whether the hypothesised outcome is a reasonable probability.⁹

Whatever meaning be given to “expectation” it goes beyond a mere hope or possibility.¹⁰

The words ‘reasonable expectation’ in paragraph 9-20(2)(c) require more than a mere hope or possibility of profit, but not complete certainty. Objectively, it is difficult to conclude that ride sourcing providers are all in a loss making position unless they drove very infrequently. From your usage data, you do not drive infrequently and a reasonable person would expect that a commercial activity such as ride sourcing driving would result in a profit.

Your profits should be calculated by applying ordinary accounting principles, and they will not necessarily be equal to your net tax position. Importantly, in carrying out this assessment, it should be noted that we are looking for expected profitability at the time of commencement, not actual profitability determined with the benefit of hindsight. In Re Applicant for an ABN and Registrar of the Australian Business Registrar [2007] AATA 63, Downes J explained the ‘danger of using hindsight’ (at [30]):

It is necessary for an application to be made for an Australian Business Number at the time that a business is commenced, not after it has already become profitable. Accordingly, most judgments as to whether a business has a reasonable expectation of profit and gain will be made at a time prior to the business actually having become profitable. This fact is a reminder that one should be careful about the use of hindsight when a business does not become profitable. There must be a legion of failed companies in Australia who had Australian Business Numbers and which did not have their business numbers cancelled when they failed on the basis that there was no reasonable expectation of profit at the time the businesses were commenced.

Additionally, as stated in MT2006/1 [at 382]:

The reasonable expectation of profit or gain is not limited to an expectation for the current year or to specific years and may cover a number of periods. Profits or gains are unlikely in the short term for some activities, such as forestry, but expected over the long term. However, the period to be covered by the test must be relevant to the nature of the activity undertaken.

It is difficult to conclude that profit is not foreseeable at your level of activity. Your costs claimed in your tax return for 2017-18 show vehicle depreciation and motor vehicle expenses. Your return also shows other expenses. No expenses were returned for the previous financial year.

Based on this objective data provided there is an expectation that a profit can be made over time. You have argued it is not your intention to make a profit, but it seems that you objectively will eventually return a profit based on all of the evidence above.

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. Anderson¹¹ (cited by the High Court of Australia in Murry¹²) 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,¹³ 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.’¹⁴ 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,¹⁵ 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).¹⁶ The majority (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].

Regarding your intention, you stated you find staying at home unhealthy and you considered other activities. Out of these activities you decided that they did not suit you as they were still with a considerably fixed timetable despite that, it did meet your needs to be able to help others. However, the data above suggests that one motive for driving with the facilitator is to supplement your income. It does not show that you intended to take people on rides as a hobby, however the mere fact that you entered into a commercial arrangement with the facilitator demonstrates otherwise. For example, there is no evidence that once you had a customer you suggested a lower rate or other altruistic means of conducting the service.

These facts support the conclusion that objectively there is a reasonable expectation of profit. The facilitator’s business model provides the conditions for a profit to be made and you chose to enter into that arrangement, and undertake the activities as required by your facilitator 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 an enterprise.

Are your activities excluded from being an enterprise because they are a private recreational pursuit or hobby?

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).

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.

Have you met the indicators of a hobby or past time?

Based on the analysis above it is not evident that you are merely engaged in driving as a hobby given the commerciality of the arrangement. In relation to the second indicator you have stated that your activities are motivated by personal pleasure and not to make a profit but you do have a plan in place as that is provided by your facilitator.

This is not an isolated activity or even done sporadically. This is conducted on average every week. The data shows there is significant repetition of activity in the provision of services to the general public.

You have not shown that the activity is conducted in a different manner to that of a commercial operator. You have been charging fares to customers as recommended by your facilitator. Given the amounts you received in gross fares it is not regarded as small scale.

You stated you have the intention of operating as a hobby but there is no objective evidence of this. As stated above, it has been conducted on a commercial basis in the manner set out by your facilitator. The activity is conducted on average weekly and each session you collect more than $300 in gross fares.

The final indicator expected in a hobby or recreational activity would be provision of services to family or friends rather than the activity of driving the general public for a commercial reward.

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’. Further, 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 under section 144-5 of the GST Act you are required to be registered for GST irrespective of your turnover.