Events of the last 12 months have seen many people change the way they work, with some moving into the sharing or gig economy to increase their income or make up for lost hours in their day job. Some have just moved into that space as a change from their previous jobs (I’ve seen that many times!)
What people may not realise is that there are tax implications to this extra income – it isn’t considered a hobby that you don’t need to declare.
The ATO has noted that it’s watching to ensure people are declaring their income from the gig economy, and the providers are sharing data with the ATO to boost compliance. For example, Uber, Airbnb and Airtasker information is all readily available to the ATO.
The accountant in me wants to reassure you that while you think the ATO won’t know about that extra income, it can and often will. This is why it’s important as we edge toward the end of financial year, to make sure you understand how tax applies to income made from the gig economy.
Here are a few tips to help you best prepare:
Talk to an accountant – especially those doing Uber or ride sharing!
My first tip may sound self-serving, but it really is imperative to seek expert advice. Accountants are best placed to assist you with preparing your tax return to make sure you are declaring everything you should be, but also claiming all the deductions you can. And the best part is, the fee that you pay to your accountant to prepare your tax return is deductible!
There are added complexities for those working as drivers under the Uber or Ride Share brands as you have to be registered for GST and complete quarterly BAS. This makes it critical to talk to that accountant.
Declare your income
The most important part of preparing your information for your accountant, or to prepare your tax return, is declaring all the income you have received from the gig economy. Most gig economy platforms will be able to provide you with a spreadsheet or report of the income you’ve earned for the year.
Claim what you’re entitled to
You can claim deductions for any expenses you incur as part of your work in the sharing economy.
For example, if you are driving for Uber or another ride sharing service, the main expense you will be incurring is for your vehicle. These expenses can be tax deductible. You will need to make sure that you keep a logbook of your journeys over a 12-week period so you can work out the percentage your vehicle used for business. The biggest thing I usually explain to clients when preparing a logbook is that it needs to track all journeys over that 12-week period, every kilometre travelled in order to prepare the most accurate logbook.
In order to get the most out of your logbook, it is important to track every expense you incur i.e. fuel, servicing, car cleaning, registration, insurance. It is best to keep your receipts as well!
If you rent a space or property through Airbnb, you can claim a portion of any property related expenses such as rates, body corporate, cleaning, heating and lighting, water, and streaming services (if your guests have access to this service during their stay).
If you’re working with Airtasker, you can claim the cost of any tools or equipment you use in your work, as well as other supplies purchased to undertake the jobs.
The other key deduction for the sharing economy is the commission that the platform takes from your income. It is important when completing your return that the income you declare is the total amount, rather than the net after the commission, but then you are entitled to claim the commission or fees from your income.
You’re probably thinking, what about all of the costs you’re going to incur to keep these records at home. For example internet, phone costs and computer expenses. You can claim a portion of these too, but you need to keep a log to note how much you’re using of these items for the extra income you’re earning.
The key takeaway when expenses relate to a mixture of business use and private/domestic use is you need to make sure you’re only claiming the business portion.
How is my tax paid on my new income?
This is a common question that I’ve touched on previously in articles and videos. It’s a common trap people fall into when moving away from employment to a business – they forget that their tax is not being put aside for them. Most clients just enjoy the extra cashflow that this brings but it will catch up with you later.
My biggest tip would be to speak to an accountant before you start, or before the end of financial year to do these calculations for you of how much tax you need to be putting aside for later on.
Speak to an accountant who can do these calculations for you and ascertain the amount of tax you should be putting aside, before it catches up with you.
Other ways to minimise your tax
Keep contributing to your super fund to ensure you minimise tax and prepare for your retirement. If you want to find out more about this – the term you are looking for is ‘’concessional contributions’’ and the caps applicable to this and how you ensure you can claim it as a tax deduction.
Right now, the Government is offering assistance with through the instant asset write-off or ‘’temporary full expensing’’ scheme. This scheme enables you to buy new assets for your business and deduct them in full in the year you buy them. Moreover, there is no limit on the cost of these assets at the moment (other than for motor vehicles which have a cap on the deductible amount of approx. $57,000).
The above items are a few key tips to help you ensure you are declaring everything you should but also maximising your deductions.
While the above tips will help to ensure your compliance at tax time and assist with maximising your deductions, it’s always beneficial to have a chat to an accountant. For further advice and help with your tax planning, please contact William Buck.