BULAW5916 Assignment: Tax Compliance for Sharing Economy Providers

This essay examines the tax compliance challenges within the sharing economy, focusing on providers like Uber and Airbnb, and the Australian tax system. It addresses the degree to which compliance is achievable and viable, considering the rapid growth and technological aspects of the industry. The essay discusses the difficulties the Australian Taxation Office (ATO) faces in estimating assessable income due to the global nature and varied transactions of sharing economy platforms. It explores potential solutions, including flexible tax laws, collaboration between the ATO and providers, specialized training for tax officers, and improved public awareness of tax obligations. Additionally, the essay suggests transaction-based taxation and industry-specific policies, similar to the banking sector, to regulate the sharing economy effectively. The conclusion emphasizes the necessity of effective regulatory mechanisms to protect consumers and the economy from the risks associated with unregulated growth in this sector. The essay also references key legislation like the 1936 and 1997 Income Tax Assessment Acts and various supporting articles.

Topic: Sharing Economy
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Topic: Sharing Economy
Question a
Income tax is one of the major sources of revenue remitted to the Australian government
by the Income tax includes tax levied on capital gains withholding tax and that which is levied
on goods and services. Regarding this, it is only the federal government that has authority to levy
income tax. Following this, the country has a full imputation system that ensures there are no
costs regarding avoidance of economic double taxation on dividends (Owen, Jong and Migai
2018). In this relation, company tax to be paid is imputed to shareholders; this is to ensure that
residential shareholders do not pay tax on dividends from profits which are normally taxed by
the government at the company level. In addition, the country operates a full-self assessment
system that gives the level of tax compliance. Similarly, the country has a number of regimes
that have been developed to ensure that cases of evasion and avoidance of tax are prevented. The
regimes include: the thin capitalization rules; CFC rules; a general anti-avoidance rule (GAAR) a
promoter penalties regime and a transferor trust regime. Since the regime ensures compliance in
all areas, this is a clear indication that the tax rules in Australia do not favour a subsidiary over a
branch operation or vice verse because all income from the various companies is subject to
taxation
In addition, the major tax legislations governing tax in Australia are the: 1936 Income
Tax Assessment Act And the 1997 amended Tax Assessment Act. Following the two
legislations, taxable income refers to income arrived at after an entity computes its assessable
income and subtracts the allowable deductions. In this sense, assessable income comprises of
both ordinary and statutory income, where ordinary income refers to gross income of a company
such as proceeds from provision of certain services for instance, services offered by Uber
drivers, Airbnb accommodation; dividends; royalties and rent (Reuters, 2014)

Topic: Sharing Economy
On the other hand, sharing economy refers to a form of economic model normally
defined as peer to peer market places. The economy entails a number of platforms like Airbnb
and Uber whose popularity has grown in the recent past as they are able to provide consumers
with a variety of choices and supplier an opportunity to make profit. Following the development,
a number of emerging issues relating to issues of tax and their regulation in general has risen.
Therefore, the questions that are sought to be answered are: how to ensure that providers of
shared economy comply with the Australian income tax and two models that can be developed or
enhanced to ensure the shared economy providers meet their tax obligations (Owens & Jong et
al, 2018)
Regarding the degree of compliance with income tax obligations and how viable it is, the
various departments in charge of tax such as the Australian taxation office, have to understand
how the providers work and make money. For instance Airbnb is a company that is known in
over than 191 States and this has enhanced its reputation and revenues. Airbnb main revenue is
drawn from bookings it charges at a certain fee. Following this, guests pay a non-refundable fee
of around 6%-12% depending on the guest’s number. However, a lower service fee is charged on
expensive reservations so as to allow large families save money for other expenses such as
travelling (Nath, 2018)
Similarly, the hosts or rather suppliers are charged a 3% fee to enable process payments
made by guests. Further, the consumers are to pay the value added tax which is normally tax
charged on the final sale of goods and services. The charge depends on the international and
local tax laws. For instance, guests looking for accommodation in the larger European union
have to pay the value added tax (VAT) and the service fee based on the rates of their country
while guests across the board may not be charged due to the difference in the nature of tax laws.

Topic: Sharing Economy
In addition, guests who pay for the services with a different currency from that of the host are
subject to pay the exchange rates as determined by Airbnb ( Nassim 2019)
Following the illustration of how sharing economy providers such as Airbnb operate, it is
hard for the Australian taxation office to estimate the assessable income generated for purposes
of taxation. This is because the company providers have a number of transactions being done
from various parts of the world and therefore the charges are different and numerous which
makes it hard to estimate the available assessable income to be taxed. Regarding this hardship,
various steps have to be taken to ensure that the companies comply with the Australian income
tax laws. However, it is important to note that, following how fast the sharing economy industry
is developing, the level of compliance cannot be guaranteed at 100% but some measures can
ensure the level of compliance stands at a good level and that there are a small number of cases
of non-compliance (Ernest 2017).
In an effort to ensure that the degree of compliance is viable, law makers should ensure
that they come up with flexible laws that are suitable for the developing technological industry.
This is because such laws will ensure compliance. Additionally, the Australian taxation office
should work in collaboration with the various sharing economy providers so as to enable
exchange of information between the two and give a better understanding of their operation. In
doing so, the taxation office will ensure compliance is attained. In addition, the various officers
should undergo time to time training in the field of shared economy as this will enable them
come up with appropriate models that will ensure that the level of compliance is achieved (Board
of Taxation, 2017)

Topic: Sharing Economy
On the other hand, the government through the Australian taxation office should ensure
that the their audit officers visit the main office or rather demand for monthly report as a way of
conducting inspection so as to ensure that their records are updated to adhere to the tax laws
established. In addition, the general public should be made aware of the tax obligations
associated with the use of sharing economy as a way of ensuring compliance from the providers.
Similarly, the Australian tax office should be on the look to be able to identify issues that
continue to come up regarding tax law in the sharing economy activities and ensure that the
public is aware of the Australian Taxation Office views on the same (Kenton, 2015)
Further, it should develop mechanisms that guide on tax consequences of disposing of an
asset relating to sharing economy income should be done. The issues should provide instances of
common circumstances. Additional, social media and paid advertising should be made use of by
informing people taking part in sharing economy about their duties regarding tax. Therefore, the
Australian Taxation Office by putting this into practice, it will ensure that a good level of
compliance in the sharing economy is achieved in regards to Australian income tax (Tom 2017).
Question b
The sharing economy has been divided into two; the first sector entails asset-based
sharing economy. Regarding this, the host or rather owners of the assets grants a right to their
customers to either use a house , vehicle or any other thing without necessarily transferring the
legal title while the other sector which is normally referred to as ‘gig economy’ is majorly labour
based. This is so since parties involved are able to offer the various professional services without
entering into a contract or agreement with their clients. In relation to this, a study conducted by
the United Kingdom revealed that around 2 billion GBP was lost in the gig economy taking into

Topic: Sharing Economy
consideration the self employed status. However, the estimation included the end-users of the
asset-based sharing economy (Houlder, 2017)
In addition, other studies in the field indicated that; the true size of the sharing economy
is unknown because of the many characteristics that remain undisclosed and because of the
limited information available. Following this, one can conclude that controlling the economy is
difficult and that there is need to come up with measures that can control the number of
providers that meet duties regarding tax income obligations in Australia (Nathi & Trevir 2018).
Following this, the suggestion is that; the income tax obligations should be placed on certain
transaction costs. For instance the Australian Taxation Office to can decide that all sharing
economy transactions over aus$500 should be taxed while any transaction below should not. In
doing so, the Australian Taxation Office can come up with a measure that requires the heads in
charge of the providers to furnish them with the full monthly reports of all services that have
generated over aus$500. This will ensure that a certain known number of persons are identified,
the obligation as to payment of income tax is monitored from time to time and therefore this will
ensure that the number and level of compliance is achieved as set (Kenton, 2015)
Further, the Australian taxation office should come up with specific policies to guide and
regulate the sharing economy sector. The laws should be industrial specific as those of the
banking sector. This is so since the sharing economy sector is rapidly developing with a high
technological aspect, which if failed to be taken into consideration, the general laws of taxation
may not be suitable. The specific laws to be developed should ensure that they take into account
every small technological development since sharing economy thrives on technology. Further, in
coming up with such laws, the ATO should ensure that a specific body like that of banks is
developed. The body should be operated in a manner where the providers in offering their

Topic: Sharing Economy
services remit a certain percentage of their income to the body as a way of paying tax.
Additional, the body should be composed of individuals who are well versed with technology so
that when they come up with policies guiding the providers, every aspect is taken into
consideration to ensure that compliance will be achieved due to the suitability of the laws (Katz,
2015)
Conclusion
Sharing economy benefits consumers by availing service providers, charging affordable
cost and providing new services. In addition, the third parties are not negatively affected by the
services offered. However, the economy exposes the regulators to several risks, especially the
income tax regulators as in the case of Australia. Following this, the regulators should not permit
the ever rapid growing economy to develop within laws that are not suitable. This is so since
allowing the economy to regulate itself will pose a danger to the consumers and the economy at
large. Therefore, coming up with effective regulating mechanisms is not a choice but a necessity
(Katz, 2015)

Topic: Sharing Economy
References
Houlder, V (2017). Tax Breaks for UKs self-employed rises in costs nearly GBP 2bn, financial
times https://www.ft.com/content/c9bbceea-d364-11e6-bo6b-680c49b4b4co
Ernest,T (2017). How Much Are People Making from the Sharing Economy
https://www.earnest.com/blog/sharing-economy-income-data/
Nathi, I. Trevir (2018). How Airbnb Makes Money https://www.investopedia.com
Nassim, K (2019). “ATO hunts hidden income from Uber, Airbnb and other gig economy
workers”:https://www.abc.net.au/news/2019-01-23/ato-hunts-australians-hiding-
income-via-uber-and-airbnb/10742528
Tom B (2017). Loophole Allows Uber to Avoid UK Tax, Undercut Rivals, Thomson Reuters,
and Westlaw
Katz, V (2015). Regulating the Sharing Economy: 30 Berkeley Technology Law Journals 1067
Owen, J., Jong, J and Migai, C (2018). The Sharing Economy: Turning Challenges Into
Compliance Opportunities for Tax Administrations
Kenton, W (2015). Sharing Economy: https://www.investopedia.com
Reuters. T (2014). Australian Income Tax Legislation: https://store.tax.thomsonreuters.com.au

Topic: Sharing Economy
Board of Taxation (2017). Tax and the Sharing Economy: A Report to the Government:
https://cdn.tspace.gov.au>sites>