A side hustle in today’s sharing economy can be great - just make sure you keep the taxman happy. Here’s some ways to help make it happen.
With living costs rising and wages staying flat, many people are keen to earn a few extra dollars, so the flexible opportunities created by the sharing economy can seem like a great solution.
Buyers and sellers can connect more easily than ever before, with digital platforms like Uber, Airtasker, AirBnB, Etsy, and Parkhound allowing people to become an entrepreneur in their spare time.
What can be easy to forget, however, are the tax and employment implications of earning spare cash through these platforms.
Remember it’s income, so declare it
“If you are earning income – regardless of how you are earning it – it needs to be declared as income,” says Helena Yuan, a tax manager with the Sydney office of accounting firm, HLB Mann Judd.
The Australian Taxation Office (ATO) has stepped up activity in this area and is using sophisticated analysis of tax returns and platform data to claw back income tax.
“It is even possible the ATO can access data collected from digital platforms operating in the sharing economy,” explains Yuan.
To avoid unwanted attention from the taxman, the first rule is to declare what you earn and the second is to ensure you maintain detailed records.
Business versus hobby
Some people are under the impression these activities are a hobby or pastime, particularly if they only work on the weekend after full-time employment.
The ATO has online information to help work out the difference between a hobby and a business, but some of the criteria are frequency of the activity, type of work and intention to earn a profit.
“If you are doing it regularly and place advertisements on a digital platform and have regular clients, it will likely be viewed as a business. By using a platform like Airtasker, it is likely to be seen as a public offer of service and therefore a business,” explains Yuan.
Following the rules
To avoid unwanted attention from the taxman, the first rule is to declare what you earn and the second is to ensure you maintain detailed records. These can be either paper records or a digital app that tracks information like mileage or rental details. These records need to be kept for five years after lodgement of your tax return.
“We are seeing lots of ATO cases where they are looking at people’s bank records and you need to be able to substantiate where the income came from,” notes Yuan.
Any expenses you plan to claim as a tax deduction also need to be fully documented and apportioned. For example, if you use your car for both personal and Uber trips, expenses like insurance and registration costs can be claimed, but only for the percentage the vehicle is used to earn income.
Additionally, as the current position considers people offering services through digital apps as independent contractors, this means they need to fulfil all their legal and contractual obligations while also being responsible for their own entitlements, such as superannuation and holiday pay.
Beware the tax traps
Earning through a digital platform also creates other tax issues, with some users needing to register for an Australian Business Number (ABN) and lodge a Business Activity Statement.
You may also need to sign up for the goods and services tax (GST), with drivers using platforms like Uber or Lyft requiring registration from their first fare. Anyone with a projected turnover of more than $75,000 per year also requires GST registration.
Landlords providing short-term accommodation do not need to register for an ABN or the GST, but there are still tax traps.
“It’s easy to think you can subsidise your mortgage by renting out a room for a short period, but it will impact the capital gains tax exempt status of your family home,” explains Yuan.
Speak to an adviser
If you are working in the sharing economy and are wondering how you should be investing your extra money, a financial adviser can help you create a financial strategy that works for you.
Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Colonial First State Investments Limited is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.