The recent case of Uber B.V. v Commissioner of Taxation [2017] FCA 110 in favour of the ATO is a reminder that the digital economy is not exempt from the standard operation of the Australian tax system.
Three areas of the digital economy that are subject to new taxing measures are:
- Netflix or digital tax
- Ride sharing services
- Online accommodation
Netflix tax
Formally known as the digital tax, this new measure will commence on 1 July 2017. It seeks to impose GST on digital services, typically bought online by consumers, provided by overseas suppliers.
Included in the new measures are digital products such as streaming or downloading of movies, music, apps, games, e-books as well as certain services such as architectural or legal services.
Most consumers use these digital products privately and cannot claim a tax deduction for their use. But for artists and creative professionals downloading movies and music may be deductible for their businesses.
If you are registered for GST and use digital products in your business, you may be able to claim back the input tax credits of those products when you lodge your BAS. But this is not an automatic right as the overseas supplier must send you a tax invoice including their ABN, among other requirements, before you can claim the input tax credit.
Ride sharing services
It is a peculiar feature of the GST Act that taxi drivers must pay GST on every dollar they earn. That is, taxi drivers have a GST turnover threshold of $0.
When uber and other ride-sharing services entered the Australian transport market, they argued that they were offering a ride-sharing service, not a taxi service, and that their drivers should not be registered for GST unless their turnover exceeded $75,000.
The recent case of Uber B.V. v Commissioner of Taxation [2017] FCA 110 was decided in favour of the ATO and places uber and other similar drivers in the same GST position as taxi drivers.
The implication for businesses that use uber and other similar services is that they may claim input tax credits on these services if they are registered for GST.
Note that a taxi must be a vehicle in order to be classified as such under the GST Act. Motorised tricycles and rickshaws are not vehicles and therefore cannot be taxis. Wedding and funeral cars are also distinguished from taxis because they are not available for public hire but rather for special occasions. Of course wedding and funeral cars are typically used privately and so businesses would not be seeing a tax deduction for their use.
Online accommodation
Airbnb, Stayz and similar online accommodation services are a feature of the digital economy, but come with similar tax obligations to the non-digital economy.
If you earn income through these services you need to keep proper records of income and expenses and declare your net income or loss in your income tax return. You do not have to pay GST on residential rent, however all income must be declared but only the expenses that relate to that part of the property that relates to the accommodation service will be deductible.
The percentage of expenses that can be claimed depends on the proportion of the year the property is rented out, the proportion of the property you have rented out and whether or not the room is used personally when it is not being rented.
Finally, note that you may also need to pay capital gains tax (CGT) when you eventually sell the house or apartment subject to the online accommodation service, even if it is part of your main residence.