Internet based business – Uber (part 5)
Tax deduction for Uber drivers
The tax ‘deduction’ table above should be read in the context of the following comments:
A. Appointment may be required – It is important to be aware that many Uber related expenses require adjustment to remove any private portion (e.g., car expenses often have a private element), and for ITCs claimed. In this regard, when claiming a tax deduction for expenses that are partly private, the expenses should first be reduced for the private element and then reduced for the ITCs claimed or claimable (if any). Refer to ID 2005/204.
For example, if a $1,100 expense (including $100GST) IS 50% deductible for income tax purposes and 50% creditable for GST purposes then a :
- $50 ITC can be claimed ($100*50%); and
- $500 tax deduction can be claimed (i.e., ($1,100*50%) less $50 ITC)).
Of course, if the expense is wholly related to the driver’s Uber business (e.g., Uber commission), no adjustment is required to be made for a ‘private portion’.
B. Claiming car expenses – The law has recently been amended to reduce the methods that taxpayers can use to claim car expenses under Division 28. Specially, from the 2016 income year, deductions for car expenses under Division 28 can only be claimed using the:
- ‘Cents per kilometre’ method – This method allows a deduction for car expenses at a rate of 66c per kilometre, up to a maximum of 5,000 business kilometres. No substantiation is required if this method is used (although the ATO may ask how the business kilometres were worked out).
- The ‘log book’ method – the Uber driver can claim the business kilometre percentage of each car expense , which may include, for example, insurance, registration, fuel, oil, cleaning, service costs, decline in value, (note, special rules apply for luxury cars).
Along with other requirements, the log book must be kept for 12 continuous weeks and that 12 weeks must begin in the income year in which the log book is first used. The log book is valid for 5 years (and can also be used for GST purposes).
C. Record keeping – Written evidence must be kept to substantiate car expenses, except for fuel and oil costs which may be based on reasonable estimates (refer to TD 97/19 – although note the more stringent substantiation rules required for GST purposes).