Share Drivers and the GST - Updated
11.08.2015
If you drive for a share ride app provider based overseas, the GST will effect you differently to any other Australian enterprise...
As of August 1, all share drivers in Australia will need to be registered for GST. Despite Uber's current court action against the ATO, fighting the GST, Australian Share Driver are advised that in the interim the GST rules still apply.
1. The ATO is singling out Share Drivers for GST, regardless how much they earn
Most Australian enterprises only need register for GST after they earn $75,000 per year. Taxis and now share drivers are exceptions to this rule. Some may argue that taxi services and share ride services are very similar. That's another debate for another time. For the purposes of understanding our present predicament, we will work with the issues of share drivers as they stand.
The way the GST is currently applied share drivers means they are effectively paying 12.5% GST out of their own pockets. Recent price rises in August 2015 have not in most cases gone near far enough to compensate drivers for the massive dip in income they have reportedly experienced. As a result, many Uber partners are quitting.
2. Share Car resale value & GST
When as a share driver registered for GST, you come to sell the car you used for ride sourcing did you know that with the new ruling you will have to collect a 10% GST? Say, you used your car part for business and part privately and it's worth $11,000 on the private market (much less as a trade) you will need to pay GST the whole value of the car, as follows:
$11,000 / 11 = $1000 GST*
This means when sell your car, you will collect $1000 GST for the ATO, therefore for your $11,000 car, you will only keep $10,000. Either that or you will need to convince your buyer to pay you extra to cover the GST but...
Not Likely is it?
If you have a car worth $11,000 and another seller has an identical car with the same wear and tear and the same Kms, either they will sell and you wont because you are charging an extra GST or you will suffer a major financial disadvantage, because you accepted market value but you now have to fork over a big chunk ($1000) to the ATO. (If you happened to pay a GST on the car when you first purchased it , as you would with a new car, there is a "decreasing adjustment" you can claim but how many of us are the first owners of new cars? Not a lot we'd summise).
Do you think this is fair? Compare to a commerical vehicle resale where there is a market expectation that GST will be charged. But is your vehicle viewed as commercial or private by your buyer? Nine times out of ten the answer will be private.
*When you deregister from GST and sell the car, there is a sliding scale on how much GST you have to pay, based upon the percentage used for business.
3. GST Input Tax Credits don't add up...
GST inputs tax credits are the GST you pay out which is then claimable against the GST you must collect.
For example:
My fare is $55, $5 of which is GST
My fuel was $44 $4 of which is GST
To work out how much GST I must pay, I subtract the GST I've paid out ($4) from the GST I've collected ($5)
$5.00-$4.00=$1.00
So I owe the tax office $1 GST to pay at BAS time.
BUT, there is a problem...
The distinction is that taxi businesses are Australian based.This means that taxi drivers and company owners all pay their fair share of GST, the remainder is tax deductible but what's the difference with share drviers?
Aussie based taxi companies get to claim tax credits on the percentage of the GST they pay, split with the company. So if for example, a cab company and a driver go 50/50 in the takings, the GST burden of each is only 5% of the total collected, then they reduce their burden further with GST input credits. The dollar amount of these credits will add up too more proportionately compared to the GST amount they collected.
Compare:
Fare was $55
GST was $5
Cab Driver gets 50% of the fare, collects 50% of the GST, $2.50
Cab Driver can claim input credits of $2.50 for $27.50 outlay
Cab Driver has no GST burden
OR
Fare was $55
Share Driver collects 100% of the GST $5
Share Driver can claim input credits of $2.50 for a $27.50 outlay
Share Driver has a remaining $2.50 GST burden but Cab Driver under the same circumstances has none.
Each can claim the same amount on their income tax return but the GST burden of the share driver is higher because the relative tax credits to GST outlay is lower.
Relative to taxis, GST Input Credits will be a smaller overall percentage of our GST layout. IE we lose out.
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We understand that because one driver might earn more than $75,000 a year (GST registration required) all taxi services must attract a GST, and the same problem applies to ride sharing.
But the way the GST is being applied puts ride share drivers at a heavy financial disadvantage when compared to taxis. A fairer way must be found.
Taxi companies are Australian so the companies collect their fair share of GST on their split. But where app providers are based overseas, share drivers have to make the difference and collect 100% of the GST on the fare, regardless of any split. Furthermore, share drivers do not have the power to enforce financial compensation from their providers to make up for the additional GST burden.
This unfair situation calls for a review of the GST for ride sharing. Solutions can and must be found, such as GST exemptions for share car resales and a comparative tax (commesurate with the GST) so that the app providers pay their fair share of tax and the drivers may be duly compensated by only being expected to pay GST on their cut. We need your help to get the message through.
Researched to the best of our abilities, nature of the information in this artice is general and cannot necessarily be applied to individual cases. The authors background is in small business management. We do not claim to be tax experts. We urge you to seek private proffessional advice to gain a clear understanding of your individual financial circumstances and how the GST will effect you personally.