The Tax Implications Of The Sharing Economy: What You Need To Know

In Australia, any income earned by a job may be considered taxable income. Those who receive their income via the sharing economy are no exception to the rule.

In fact, further complications can result from incorrect understandings of how the income tax and goods & services tax may apply to those individuals. ‘

The sharing economy is a socio-economic system built around sharing resources, often through a digital platform like a website or an app that others can purchase the right to use for a fee.

Popular sharing economy services and activities that could be subject to income tax include

  • Being a Driver for popular ride-sharing/ride-sourcing services and obtaining fares for those services
  • Renting out a room, whole house or a unit on a short-term basis
  • Sharing assets (such as cars, parking spaces, storage space or personal belongings) through platforms such as Camplify, Car Next Door, Spacer, Toolmates or Quipmo.
  • Creative or professional services provided by individuals through online platforms to fill a need of others (also known as the gig economy)

You need to remember some things about the income and goods & services tax for these popular sharing economy services, including:

Ride-Sourcing/Ride-Sharing

If you’ve ever caught an Uber or gotten a Lyft, you’ve been on the passenger side of ride-sourcing. The income received from ride-sourcing is subject to goods and services tax (GST) and income tax is applied to it. All drivers on ride-sourcing platforms in Australia must have an Australian business number and be registered for GST.

GST requires:

  • An ABN
  • GST is to be registered from the day you start, regardless of how much you earn.
  • GST is to be paid on the total fare.
  • Business activity statements (BAS) to be lodged monthly or quarterly.
  • To know how to issue a tax invoice (any fares over 82.50 must be provided if asked).

Income tax needs to:

  • Include the income you earn in your income tax return
  • Only claim deductions related to transporting passengers for a fare, including apportioning expenses limited to the time you are providing a ride-sourcing service
  • Keep records of all your expenses and income.

Renting out all or part of your home

Renting out all or part of your residential house or unit through a digital platform can be an easy way to supplement your income, especially if you aren’t using the property at that time. If you do this, 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
  • Do not need to pay GST on the amount of residential rent you earn.

Sharing Assets (Excluding Accommodation)

Assets that can be shared through a platform include personal assets (e.g. bikes, caravans), storage or business spaces (e.g. car parking spaces) or personal belongings like tools, equipment and clothes.

When renting out or hiring these (share) assets that you own or lease through a digital platform, you:

  • Need to declare all income you receive in your income tax return
  • Are entitled to claim certain expenses as income tax deductions
  • Need to keep records of the income you earn and of the costs you can claim as deductions

Providing Services

Providing time, labour or skills (services) through a digital platform for a fee requires you to report income in your tax return. Deductions for expenses directly related to earning this income can be claimed, and records must be kept to support these claims.

The following services that can be provided are considered to incur assessable income that needs to be reported in your tax return:

  • Delivering goods
  • Performing tasks and activities
  • Providing professional services

Those who fail to declare their income from their sharing economy side hustle may incur penalties in the form of interest on their tax bills or potential criminal charges.

You must ensure your tax return is correctly lodged and all income is declared if you are a gig economy worker. If navigating your tax return feels daunting, consider contacting us for assistance.

When It Comes To Tax, Is It A Business Or A Hobby?

There are critical differences between having a hobby and running a business, and they mostly have to do with your tax, insurance and legal obligations.

Understanding the characteristics of businesses and hobbies is essential to ensure you correctly determine your activities.

Are You In Business? 

While there is no single, defining factor that determines whether or not you are in business, some of the factors that you still need to consider include:

  • You intend to make a profit – or genuinely believe you will make a profit from the activity – even if you are unlikely to do so in the short term.
  • You’ve made a decision to start a business and have done something about it to operate in a businesslike manner, such as:
    • registered a business name
    • obtained an ABN.
  • You repeat similar types of activities.
  • The size or scale of your activity is consistent with other businesses in your industry.
  • Your activity is planned, organised and carried out in a businesslike manner. This may include:
    • keeping business records and account books
    • having a separate business bank account
    • operating from business premises
    • having licenses or qualifications
    • having a registered business name.

The Benefits Of Running A Business 

If you run a business you can:

  •  apply for an ABN to use in your business transactions
  • have the flexibility to manage your time and work your own hours
  • register a .com.au website or a .au website once you have an ABN
  • access to government information, services and concessions for business
  • establish a business identity when selling to customers and other businesses
  • claim tax deductions for business expenses against your taxable income.
Is It A Hobby? 

A hobby is a pastime or leisure activity conducted in your spare time for recreation or pleasure. While you may create a business from the starting point of a hobby (such as crocheting or painting, etc), that is not the primary purpose of the hobby.

The Benefits Of A Hobby

Having a hobby allows you to:

  • gain personal enjoyment and satisfaction from the activity
  • gift or sell your work for the cost of materials
  • do it in your own time or when people contact you
  • have no reporting obligations of a business.
What Are The Differences? 

The key differences between a business and a hobby are as follows:

  • Declaring Payments:

You do not need to declare the amount made from your hobby to the ATO. However, you must declare your income to the ATO in your annual return as a business.

  • Claiming Tax Deductions:

You cannot claim a deduction for any losses from your creative work if it is a hobby. As a business, you can claim for deductions on your expenses and generally need an ABN to do this.

  • Keeping Records:

You do not need to keep records of your hobby for the ATO, however it’s good practice to keep records in case your circumstances change.You must keep records for your business for tax and other obligations.

  • Licences & Permits: 

Generally, you will not need to hold licences and permits for your hobby. However, you may need licences and permits specific to your type of business.

  • Australian Business Number (ABN) eligibility:

As a hobby, you are not eligible for an ABN for a hobby, however if you sell goods or services to businesses, they may ask you for an ABN when they pay you. You can use a Statement by a supplier form to avoid the business withholding an amount from the payment to you for not having an ABN. The statement lets the business know you are selling the goods or services as a hobby.

As a business, it is not compulsory for businesses to register for an ABN, however getting an ABN is free and makes running your business easier, particularly if you have to register for other taxes like GST. Without an ABN, other businesses must withhold 47% from payments they make to you for tax purposes.

  • Selling Goods

If you’re selling goods, you’ll need to comply with Australian Consumer Law (ACL). Your customers have automatic rights if they buy a product that breaks easily, doesn’t work or doesn’t perform as generally expected.

If you are not sure about whether your activity would be classified as a business or hobby, you can seek professional advice from an accountant, legal expert or business adviser who can help you decide what exactly it is that you’re running.

What Happens To Superannuation When Bankruptcy Is Declared?

Have you ever wondered what happens to superannuation when someone claims bankruptcy?

Bankruptcy is a legal process that can be commenced when you are declared unable to pay your debts. It is a process that can release you from most debts, provide relief and allow you to make a fresh start.

However, bankruptcy is not a process to enter into lightly.

There are two ways to enter into bankruptcy. These are:

  • Voluntary Bankruptcy: The Australian Financial Security Authority appoints a trustee when you become bankrupt. This trustee is a person or body who manages your bankruptcy.
  • Sequestration Order: Where you nominate yourself for bankruptcy by submitting a Bankruptcy Form.

When you become bankrupt, the Australian Financial Security Authority appoints a trustee. This trustee is a person or body who manages your bankruptcy.

The trustee can take any cash or money you have in a bank account at the date of bankruptcy but should leave you with enough for modest living expenses.

During your bankruptcy, you can keep the income that you save. However, you may have to make compulsory payments if your after-tax income exceeds a set amount. This amount changes with how many dependants you have.

When you are bankrupt:

  • You must provide your trustee with details of your debts, income and assets.
  • Your trustee notifies your creditors that you’re bankrupt, preventing most creditors from contacting you about your debt.
  • Your trustee can sell certain assets to help pay your debts.
  • You may need to make compulsory payments if your income exceeds a set amount.

What Happens To Superannuation?

When someone goes bankrupt, their bankruptcy trustee can recover or sell any assets considered divisible property.

The Bankruptcy Act sets out what is and what isn’t divisible property.

A bankrupt’s superannuation is generally not considered divisible property and is not available to a bankruptcy trustee.

However, it depends on when and how you receive your super. Your trustee must be notified if you receive superannuation before or after your bankruptcy begins.

If Received Before Bankruptcy

  • Super payments received before bankruptcy are claimable by your trustee
  • Any asset purchased with those funds (such as a house) can be claimed by the trustee

For example, if you have taken funds out of your superannuation fund before bankruptcy and you still hold them in your bank account at the time of bankruptcy, the funds will be considered divisible property and you will have to pay any funds still held to your trustee.

This includes both funds taken out as a lump sum and as a pension.

If Received During Or After Bankruptcy

Super payments that are during or after bankruptcy:

  • are not claimable by your trustee if it is a lump sum payment
  • your trustee cannot claim assets you purchase with those funds, e.g. car.

An exception is where your super isn’t in a regulated fund, approved deposit fund or an exempt public sector scheme. Your trustee can claim super not held in these types of funds.

Received As Income

During bankruptcy, the super you receive as an income stream (e.g. a pension) forms part of your assessable income. You may need to make compulsory payments if your income exceeds a set amount.

Self-Managed Super Funds

Someone bankrupt cannot be a trustee of a self-managed super fund. If you have a self-managed fund, you must advise your trustee. You must cease acting in this position and notify the ATO within 28 days. See the ATO website for more information about removing yourself as a trustee.

Are you facing bankruptcy and concerned about risks to your superannuation fund? Speak with a licensed professional today.

Maximising Your Tax Deductions As A Home-Based Business

Small business owners may be able to claim deductions for the costs of using their home as a principal place of business when filing their income tax returns.

A home-based business is one where an area of your home is set aside and used exclusively as a place of business. If you do not have an area set aside and used exclusively as a place of business, but you do some work from home, you may still be able to claim a deduction for some of your expenses relating to the area you use.

Tax deductions may be claimed for the business portion of household expenses; however, ensuring you are claiming expenses you are entitled to can be challenging. How you operate the business out of your home will determine the expenses that may be claimed. Your business structure will also affect your entitlements and obligations when claiming deductions on home-based business expenses.

Generally, three types of expenses can be claimed: running expenses, occupancy expenses, and in some cases, the cost of motor vehicle trips between your home and other locations (if the travel is for business purposes). You can claim occupancy and running expenses if you have an area of your home set aside as a ‘place of business’.

Running expenses refer to the increased costs of using your home’s facilities for the running of your business, including:

  • Repairs to your business equipment.
  • Heating, cooling and lighting a room.
  • Cleaning.
  • Phone and internet.
  • Depreciation of business furniture and equipment.

To calculate the running expenses of your home-based business, you must ensure that you exclude your private living costs and that you have records to show how you calculated the expense.

Occupancy expenses are those that you pay to own or rent your home, including:

  • Mortgage interest or rent.
  • Land taxes.
  • Council rates.
  • Insurance premiums.

Occupancy expenses are calculated based on the floor area of your home that is used for the business and the portion of the year that it was used.

Small business owners should note that capital gains tax (CGT) payments may be required when your home was used for business. However, CGT won’t apply if you operate your business from a rented home, didn’t have an area expressly set aside for your business activities or the business was run through a company or trust.

Records that need to be kept include written evidence, tax invoices and receipts, and should substantiate your claims for all home-based business expenses. This needs to be kept for at least 5 years to substantiate your claims.

Your business structure can affect the method you can use and the expenses you can claim, especially if your business is a company or trust. If you are a sole trader, a partnership or a company or trust, there are specific rules that may apply to you. Speaking with a trusted tax adviser is the best way to ensure you comply with those guidelines – why not start a chat with us today?

Gender & The Super Gap – How Does Yours Compare?

The superannuation gender gap has been a subject of serious concern for at least half of Australia’s population.

Women are more likely to have significantly less money saved for their retirement, less assets and far less super than men, putting them in a place of greater financial stress and concern.

For example, a woman in the 20-24 age bracket may have an average super balance of $8,051, while a man in the same bracket is expected to have an average balance of $9,481. In the 40-44 age bracket, the average super balance for men is $134,992, while women in that age group may only possess $98,572.

The superannuation gap is facilitated by various factors that often adversely affect women more than men.

Men and women may have different super balances due to pay gaps, salary differences and potentially the amount of time they have spent working (maternity leave, working part-time versus full-time etc., taking time off work for travel, etc.).

Some key contributing factors include:

Pay Disparity (The Wage Gap)

In Australia, the gender pay gap is 22.8%.-  for every $10 earned by a man, a woman (on average) will only earn $7.72.

Caregiving

Time taken out of the workforce for the purpose of caregiving is predominantly done by female employees. Females account for more than 70% of primary caregiving, on average, taking five years out the workforce. Their caregiving responsibilities may range from childcare to looking after ill or elderly family members.

Part-time Workers

Women are more likely to work part-time or casually than men, contributed to by a lack of workplace flexibility to accommodate care responsibilities. This not only affects the amount women earn, but career and wage progression.

Compound Interest Effects

Compound interest makes super a powerful tool when saving for retirement as interest is paid on both the principal and interest from past years: a bit like the snowball effect – over time you see exponential growth.

A lifetime of earning widens the gap, and compounding interest deepens this divide. Males are earning compound interest on their more considerable savings, which means more interest in the long term.

There are three proposed measures concerning how the superannuation gap could be addressed at a macro level. These include:

  • Including superannuation guarantee contributions in the Commonwealth Paid Parental Leave scheme, as a majority of recipients are women, and it is a leading cause of the gap exacerbation.
  • Allowing unused concessional contributions to be made for recipients of Commonwealth Paid Parental Leave without time limits is harming women’s superannuation outcomes, so the policy needs to be changed accordingly.
  • Amending the Sex Discrimination Act to ensure employers can make higher superannuation payments for their female employees if they wish to do so without contravening the existing legislation.

Here are some examples of ways in which women can increase their super balances to make up for any losses that may have been incurred until legislative action is taken to amend this discrepancy:

  • Contribution splitting – by having their spouse transfer some of their superannuation contributions over to their account, their account can be increased.
  • Salary-sacrificing contributions into their super to make up for the shortfall from not working in the previous year.

If you are concerned about your superannuation or would like further advice, please speak with us.

Cash Flow Health Check In The New Financial Year

Throughout the financial year, there may be periods where your business finds itself facing a recurring problem with its cashflow.

Small businesses with cash flow issues may find themselves more at risk of failing or suffering significant financial hardship – during these critical times in the business landscape, this is not an ideal situation.

Cash flow provides a business with stability so they can pay employees, avoid loan defaults and pay the overheads necessary to keep their business up and running. Follow these tips to boost your cash flow to secure your business’ future.

Perform A Business Health Check

Preparing financial statements will give you an objective insight into the health of your business. Identifying if you have a cash flow problem is the first step to coming up with solutions. The following reports will allow you to see if your cash flow is up to scratch.

  •     A balance sheet will tell you what your business is worth on any day. The value of your business is calculated by subtracting your liabilities from your assets.
  •     Profit loss statements reveal if your income is meeting your expense requirements. If your profit is dipping below your expenses, it is time to change.
  •     Cash flow reports reveal the money going in and out of your business over a set period and identify peak and off-peak periods

Use A Business Budget

After analysing your cash flow situation, is your cash flow cyclical?

Creating a yearly budget is not only imperative to receive financing in future, but will also help you identify the best months to save to cover the quieter months.

Where applicable, business owners can consider flexible rostering, whereby employing casuals and using a flexible roster can help you cut back on hours when you need to improve your cash flow in quiet periods.

When you have identified your quieter periods of the year, try to find additional revenue streams for when cash is low. Is there a product or service that could be introduced? Work with your team for new ideas to cover low cash months.

Get On Top Of Your Accounts Receivable

Allowing late repayments jeopardises your cash flow and can put you in a tight financial spot. Avoid being out of pocket by implementing some of these credit policies:

  • Collect the debts on time – allowing late payments means that you’re without those funds for longer
  • Offer an early bird discount to incentivise early repayments – it pays to repay that kindness
  • Set credit limits and payment terms – know exactly what your terms and conditions are so that you can make sure that those who owe you are abiding by them
  • Make credit applications and carry out credit checks on all new customers
  • Penalise late payments with interest – set a specific interest rate that will apply and which you deem as fair.
  • Consider cutting down on inventory – unsold stock can be a waste of funds, and if you’re finding yourself with plenty of it, you may not need to be ordering as much.
  • Request upfront payment or a non-refundable deposit where viable, especially when dealing with large orders.

If you’re looking for assistance with invoicing, chasing payments or a general checkup of your business’s cash flow situation, accountants like us are equipped to help. Speak with us to find out what we can do for you.