Uber B.V. has filed an application in the Federal Court against the Commissioner over the ATO’s treatment of ride-sourcing arrangements.
According to the ATO website, the provision of ride-sourcing services constitutes “taxi travel” services. This is because a car is being made available for public hire and use to transport passengers for a fare. Under the GST law, if a taxpayer carries on an enterprise and provides taxi travel services in that enterprise, the taxpayer would be required to be registered for GST regardless of the amount of turnover.
Source: Federal Court website, 31 July 2015 and ATO website, 20 May 2015.
Michael Mekhitarian recently posted the article “Should Uber Drivers Have to Pay GST.”
SHOULD UBER DRIVERS HAVE TO PAY GST?
June 4th 2015
As of the 1st of August this year Uber drivers must register for GST or face fines from the ATO. The initial complaint about Uber drivers not paying GST was put forward to the ATO by Go Catch chief executive Ned Moorfield. His concern was that Uber drivers were receiving a 10% price advantage over taxi drivers by not paying GST. This blog post will explain the competitive landscape in which Uber and taxi drivers operate as well as the ATO’s complex role in taxing emerging global technologies.
Uber has created opportunities for both consumers and drivers to create a more meaningful transportation experience through a diverse range of services including everyday cars, standard taxis, private drivers, larger cars and luxury travel. Uber boasts that they are able to provide cheaper prices in comparison to taxis using everyday cars, a one-tap to ride service using a mobile application, reliable pickups, clear pricing, cashless and convenient service, feedback on drivers and is even able to split travel fares between multiple people.
Uber has been responsible for making the taxi industry more competitive. According to an article published by the SMH late last year, in the past investing in the taxi market was 1.5 times more lucrative than buying shares. The disruption caused by Uber and the industry regulator is affecting the barriers to entry that previously existed due to anti-competitive practices such as the inflated costs of taxi plates. These barriers to entry offered protection to large fleet operators, taxi networks and other protected stakeholders. The transfer value of a taxi plate is currently at a 6 year low with a price tag of $375,000.
An ABC article published in mid-2013 claimed that taxi plate prices are artificially high with most taxi drivers unable to afford to purchase them outright and instead pay a ‘bail-in-fee’ of 50 percent of their shift takings to someone higher up in the taxi industry. Another cost that inevitably gets paid by consumers is the 10% cab charge service fee which is a highly inflated cost for consumers compared to other EFTPOS systems.
“We now live in a world where Australian businesses are exposed to a lot of global competition and we need to take this as an opportunity to adapt and improve our service offerings.” Michael Mekhitarian.
Currently, consumers aren’t satisfied with the services provided by taxi drivers. The NSW taxi fare regulator IPART reported an increase in complaints of 75%, an increase of 91% in unhappiness due to poor customer service from taxi drivers and a decrease in compliments of 60%. Passenger numbers are on a decline with some consumers seeing taxi travel as a luxury item due to the high cost. In addition to this, taxi driver wages have collapsed making them the ‘working poor’ with annual salaries of $29,000 down from $47,000 that taxi drivers were making only a few years ago.
With the pressure on Uber drivers to register for GST, it requires us to ask the question, is ride-sharing a hobby or a business? Take this scenario, for example, a low skilled worker loses their job and experiences unemployment for 6 weeks. During these 6 weeks, they become an Uber driver to cover their minimum living costs. Is it fair that this person should have to pay accounting fees to ensure they are compliant with the ATO’s requirements? Take into consideration that people who offer occasional room rental through the app Airbnb do not need to register for GST.
There’s no question that Uber is disrupting the taxi industry. But does Uber drivers not paying GST create an unfair advantage for the taxi industry? The short answer is yes. With an automatic 10% discount, no need to purchase a taxi number plate, cheaper licenses and flexible fare charging it’s no wonder the taxi industry is up in arms about the introduction of Uber to the Australian market!
“In an ideal world we would level the playing field to ensure fairness within all industries but it is complicated when dealing with new technology and tax legislation.” Michael Mekhitarian.
The ‘unfair’ cost advantages that Uber drivers have over taxi drivers are extensive. According to the Taxi Services Commission as of July 2015 taxi licenses will cost $22,703 for a metropolitan taxi license whereas unrestricted license holders (Uber drivers) pay only $54 per year. Uber drivers also benefit from flexible fare charges based on supply and demand whereas taxi drivers must charge according to maximum fare and charges set out by regulators.
It is important to consider that the current GST legislation states that GST must be paid by all taxi drivers regardless of income. With passengers providing fares in exchange for travel it’s understandable that some people might think that Uber drivers fall into the category of ‘taxi drivers’. “Affected drivers must register for GST, charge GST on the full fare, lodge business activity statements and report the income in their tax returns,” Deputy Commissioner James O’Halloran said. “We’re of a view that ride-sourcing is, in fact, providing taxi services and falls under the provisions of GST law.” As a result of paying GST, Uber drivers will also need to pay income tax on their earnings. Uber drivers will however be able to claim fuel tax credits once registered for GST and they will be able to claim depreciation for the proportion of the time they use their car for trading using Uber.
“While it’s everybody’s right to minimize their tax the burden should be shared equally and fairly.” Michael Mekhitarian.
Is the ATO able to keep up with technology? Overall the issue with Uber is consistent with the ATOs ongoing problem in dealing with the shift in technology. Some multinational businesses are able to trade in Australia from overseas tax-free. Other multinationals aren’t paying GST as they are not registered entities within Australia. For example, Facebook has structured their affairs so that they are operating out of Ireland which means they don’t have to pay GST or income taxes in Australia.
This article is provided as general information only and does not consider your specific situation, objectives or needs. It does not represent accounting advice upon which any person may act. Implementation and suitability require a detailed analysis of your specific circumstances.