Internet based business – Uber (part 4)
Income tax consequences for Uber drivers
From the outset, it is important to be aware that an Uber driver is not an employee of Uber. Uber is not subject to the PAYG withholding rules and is not required to make super guarantee payments for drivers. Uber drivers are responsible to ensure that they meet their income tax responsibilities.
In this regard, the ATO view is that income derived by Uber drivers is assessable income for tax purposes on the basis that it is ordinary income. In fact, the ATO would argue that most Uber drivers are carrying on a business (refer to TR 97/11) because of the structured way in which most operate, including that the provision of their services is carried on in a repetitive manner, for a commercial reason and with an intention to profit, and in a business-like manner.
For completeness, note that, it is possible that an Uber driver may carry on their activity as a hobby (i.e., recreational pursuit), in which case, the income would not be taxable. However, the driver should expect the ATO to challenge this argument (is the Uber activities produce a profit).
Be cautious is the assessable Uber income is less than related deductions (i.e., if the Uber activity produces a loss). If the Uber driver is not carrying on a business and the loss by challenging the subjective purpose of the taxpayer in incurring the expenses (refer to TR 95/33).
If the Uber driver is carrying on a business, the loss cannot be offset against other assessable income (e.g., salary) unless one of the four non-commercial loss tests in Division 35 is satisfied. Practically, the test is satisfied where the Uber driver has fares of at least $20.000 (pro rata where the business commenced or ceased during the income year).
What tax deductions are typically available to Uber drivers?
Here are some common expenses that an Uber driver may encounter.
- Uber commission (20% of fare)
- Car expenses
- Water, mints etc. for passengers
- Accountants fees
- Parking costs and tolls
- Phone and internet costs
- Sunglasses (protective)
- Initial police check
Typically not deductible:
- Personal clothing
- Personal costs (e.g., personal hygiene products)
- Expenditure on meals (private)
- Speeding and parking fines (S.26 – 5)