Written by Nick Fedele:
Are you thinking of renting a room in your home through Airbnb or becoming an Uber driver to earn additional income? If you are, then you will be entering into the sharing economy and you will need to be aware of the different tax implications. The following explores the implications for Income Tax, GST and Capital Gains Tax.
When you are involved in the sharing economy, you need to consider whether you are carrying on an enterprise (i.e. a business). If you are involved with a ride-sourcing facilitator such as Uber, you will be considered to be carrying on an enterprise. When you are carrying on an enterprise you will require an Australian Business Number (ABN) and potentially to register for GST (GST is discussed in detail below).
Regardless of whether you are carrying on an enterprise or not, the income you earn from the sharing economy needs to be declared in your income tax return. The types of income that are assessable and will be included in your tax return are:
- Income from performing services for a fee, for example fees received from Uber driving or providing a delivery service.
- Short or long-term rent received from a property or part of property that you own or lease such as your home, rental property or car parking space. This includes rent received through services such as Airbnb or Stayz.
- Income from providing other forms of property to people to use, such as sharing a motor vehicle through GoGet.
Like any other type of income that you would normally declare in your tax return, you are able to claim deductions for expenses you incur that are directly related to the income that you earn. Other than the fees charged by a sharing economy facilitator that can be claimed in full, it is likely the majority of your other expenses will be required to be apportioned to take into account any private use which is not deductible. Examples of the common deductions sought in the sharing economy are:
For ride-sourcing services such as Uber, you can claim a deduction for the fuel, maintenance, insurance, interest (if applicable) and depreciation for the vehicle you use. However, if you use the vehicle for personal trips at all you need to consider this. The easiest way to calculate the private use portion is to keep a logbook of the odometer readings.
For income earned by renting out a property through services like Airbnb the following common expenses are deductible:
- council rates
- interest on a loan for the property
- electricity and gas
- property insurance
- cleaning and maintenance costs
If you are not renting out the whole property you will need to apportion the expenses based on the floor-area solely occupied by the renter and add a reasonable amount based on the renters access to common areas. In addition to the area, you can only claim a deduction for expenses related to your home for the number of days you rent out the property.
As mentioned above if you are carrying on an enterprise you will need to register for GST. Generally it is only required if your actual or projected turnover earned through an enterprise is above $75,000 per annum. However, for ride-sourcing businesses, like Uber, you are required to be registered for GST regardless of your turnover. This will mean that if you are currently operating a business that is not registered for GST and you start a ride-sourcing service on the side, the income you earn in the other business will now become subject to GST.
Once you are required to, start accounting for GST you can also claim credits for the GST paid on expenses that you will be claiming as deductions. The same apportioning rules for income tax deductions apply to the amount of credit you can claim for GST purposes.
For residential rent, you are not liable for GST on the rent you receive and you cannot claim any GST credits for the related expenses. You will only have to account for GST on rental income and expenses if you provide accommodation like a hotel room or a serviced apartment because this would be considered commercial rent.
Capital Gains Tax (CGT)
Another consideration that should be made when you start earning income through the sharing economy are the CGT implications. In particular, when you only rent out a part of your home and you decide to sell the property you cannot claim the full main residence CGT exemption. The exemption will be lost in the portion of the property that was rented out based on the floor area and the length of time.
Not all situations will result in you losing the main residence exemption. For example, if you decided to travel for an extended period and decide to completely move out of your home and rent it out for the period you are away, you will not lose the main residence exemption as long as the period is no more than six years and you own no other property during that period.
If you require any further information, please contact the MGI Adelaide office.
This communication is general in nature and current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Should you wish to discuss any matter raised in this article, please feel free to contact us.