BULAW3731 Income Tax Law and Practice: Sharing Economy Taxation Report

This report examines the income tax laws and practices relevant to Uber and traditional taxi services in Australia, addressing the challenges posed by the sharing economy and the black economy. The introduction provides an overview of the black economy and its impact on honest taxpayers, the integrity of the tax system, and the rise of the sharing economy. The report then details the business models of Uber and traditional taxis, highlighting key differences that affect taxation outcomes. It analyzes the tax consequences under existing Australian tax law, focusing on difficulties in identifying and taxing income from the sharing economy, and disparities in reporting frameworks. The report further explores how digital platforms like Uber and traditional taxi systems are taxed, and the impact of the black economy on tax revenue. It uses research to analyze the tax implications for ride-sharing services and the role of the Australian Taxation Office (ATO) in ensuring tax compliance. The conclusion summarizes the findings and suggests areas for improvement in tax administration within the context of the sharing economy.

Running head: INCOME TAX LAWS AND PRACTICE
Income Tax Laws and Practice
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Table of Contents
Introduction:...............................................................................................................................2
Overview of Black Economy:....................................................................................................2
Overview of Sharing Economy:.................................................................................................3
Sharing economy business model and traditional business model:...........................................4
Digital transportation business model (Uber):.......................................................................5
Traditional Taxation System (Taxi).......................................................................................6
Key differences between the two business models that effect taxation outcome:.....................7
Tax consequences under existing Australian tax law................................................................9
Conclusion:..............................................................................................................................10
References:...............................................................................................................................11

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Introduction:
The black economy taskforce was set during December 2016 with the objective of
developing forward looking, multi-prolonged policy so that it can combat the Australian lack
economy. In the final report of the black economy taskforce, it has highlighted the harm
which black economy is causing to business in Australia and community. It penalises the
taxpayers that are honest, reduces the integrity of the Australian taxation system and welfare
system (Cannon & Summers, 2014). The black economy results in unfair grounds for a large
number of small business that are doing things correctly. The impact is also currently
experienced by several businesses in Australia and consumers and those that are operating
under the sharing economy.
In recent years, there has been a strong growth in sharing economy, it facilitates
innovation, growth in job and more choice for the customers. During the consultation, the
task force perceived that as the sharing economy grows in terms of size there is an increasing
amount of risks that sellers might not be paying correct amount of tax (Wallsten, 2015). This
probable underpayment of tax weakens the benefits that sharing economy to the customers
and business and forms an unfair playing field for those that are doing things in the correct
manner.
The ATO has set up arrangement with some of the platforms so that it can obtain
information under its current information collecting powers (Posen, 2015). Data collection
under the ride sourcing sector has allowed ATO to take preventive steps which helps drivers
in understanding and complying with their tax reporting obligations.
Overview of Black Economy:
Black economy implies people that are completely operating out of tax and regulatory
system. It consist of wide ranging practices such as under reporting of takings, payments and

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accepting cash wages by not recording in the books of accounts, welfare funds, contractors
operating in sharing economy. Majority of the of the Australians thinks that under a level
playing field and feel it is unfair for the others obtain the competitive advantage by
deliberately doing illegal things (Rauch & Schleicher, 2015). The black economy is
constantly changing its forms and it is regularly supported by the incorrect assumptions that
taking part in black economy is a victimless crime. This includes the employers ill-treating
their workers and not paying them what they are actually authorised to. It includes businesses
that are dishonest and does not pay tax or superannuation to undercut their competitors.
Criminals that are operating in business models out of the tax regulatory systems.
This ultimately creates pressure on the Australians that are doing things in a correct way.
It also creates a greater effect on the community by lowering the funds for crucial facilities
such as health, education, transport and infrastructure and community services (Slee, 2017).
The black economy is not only restricted to tax issues but it is also very difficult, multi-
faceted occurrence that operates across Australia’s office relations, monetary wellbeing,
earnings and migration system. Some of the black economy behaviours includes;
a. Demanding for cash wages to paid in hand in order to avoid obligations
b. Under-reporting or non-reporting of earnings
c. Bypassing visa restrictions and fraud
d. AGN, GST and levy fraud.
e. Sham contracting
Overview of Sharing Economy:
The word “sharing economy” defines use of internet applications by people to rent out
their property, resources, skills and timing (Schor, 2016). Sharing economy platform permits
the users to monetise the work of excess volume in the use of assets or labour. Examples of

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sharing economy includes cars, or services relating to transportation. Users under the sharing
economy can either rent their assets that is owned by them or provide the service in exchange
of fee or pay for its use of assets or obtain services on the “as required” basis. For example,
the car owner here holding a license to drive the vehicle can offer ride-sourcing services to
the consumers through such platforms. The most common ride-sourcing service is Uber.
The sharing of economy is completely based on the idea of access over ownership.
The effect and the use of sharing economy has increased significantly in the recent years in
Australia and other nations, with rise in their availability and affordability of access to
internet, particularly through the smart phones (Rauch & Schleicher, 2015). Additional
examples of the sharing economy comprises of the services together with the renting out of
room or the entire dwelling for a short-term basis, renting the parking spaces, offering
personal services. Some well-recognized platforms for these services include the Airbnb,
Uber, Airtasker and Taskrabbit. There are also some other names through which sharing
economy is known such as “gig economy”, “mesh economy” or “peer production”.
Sharing economy business model and traditional business model:
The activities of sharing economy are usually coordinated through applications
running on the smartphones of the individual participants that connects with the platform
hosted by the operator. The platform plays the intermediary role among the individual
participants that might make use of the platform to agree and contract for delivering some
facilities (Allen, 2015). The envisioned operations of the sharing economy platform states
that it does not employ any of its participants nor does its own or control any assets pooled on
the platform. Instead the platform generally provides the payment mechanism and charges a
fees or commission on the transactional basis. The section explains the business models of
Uber and traditional taxicabs both operating in the transportation segment.

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Digital transportation business model (Uber):
Uber is viewed as the platform which connects the drivers and passengers. The
business was launched in 2010 and has successfully extended its services in more than 45
countries. Uber has raised $US1.2 billion from the mutual funds and other investors and has
confirmed pre-money valuation of US$17 billion (Scholz, 2014). The company does not its
own cars. It is only a smartphone application which provides the facilities to many level of
transportation services, each with different prices and needs. These are all considered as the
alternative mode of transport that extends to numerous domains functioning in the market.
Uber must be viewed as more broader than the alternative to the taxicabs it is regarded as the
platform for conveyance facility more commonly.
Uber must be regarded as a very broad service than the current alternative to the
taxicabs. Riders are able to set the location for pickup and request for the driver. Apart from
this Uber also provides the car pooling services (Frenken & Schor, 2017). One of its business
models includes the Uberpool which synchronises with the riders that are traveling on the
same location along with the same route. If a match is discovered for the same route, then the
riders in this case will be notified regarding the co-riders first name. Uberpool has faced wide
range of criticism from the regulators as the public commission of Australia has said that
Uber’s new business model of carpooling service is not legal. The main reason behind this is,
two different riders pay the different fares for sharing one car only.
On an average basis a UberX partner that drives around 20 hours in a week takes
homes around $2500 in a month. Uber has estimated that it created around 25,000 more
riders in 2013 and rising based on the transportation market (Cramer & Krueger, 2016).
Besides this, the services of the UberX is approximately around 20 to 50% cheaper than the

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traditional taxi cab. A study performed by the Uber says that a typical company that makes
the use of UberX is anticipated to save more than $1000 every year based on each travelling
employee in comparison to the using annual charges of hiring the traditional taxis.
After the ride, both the rider and the actual driver provide the feedback on their
experience with the other party with the help of rating system. This binds both the parties
responsible for their actions, aligning the incentives for both the drivers and riders to keep
higher ratings (Martin, 2016). The ratings are reviewed on constant basis by the local teams.
When the ratings falls below the certain level or the driver or the rider then they are asked to
provide the reason for the lower ratings.
Traditional Taxation System (Taxi)
The most common form of transportation services which can be hired for convenient
travel is taxis and the same is used widely by individuals or a group of customers. The pricing
schemes or pattern which is followed by traditional taxis are constant irrespective of any time
or occasion, the same does not change (Koopman et al., 2014). The city authorities inspect
the vehicles which are used by traditional drivers on annual basis before it can offer
transportation services to riders. Unlike digital system of transportation, there is no rating
system in a traditional taxi and even the drovers are much more experienced in handling the
vehicles.
The traditional transportation system is used by individuals or a group of individuals
for effectively providing transportation services from one place to another. The traditional
taxis are based on meter-based pricing system and every taxi has a meter installed in them.
The fare for traditional taxis are decided by the meter and the same is done considering the
distance travelled by the rider (Mittendorf, 2017). The traditional taxis are required to be
examined on an annual basis so that it can be established that they are in a condition to

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operate on roads and provide safe rides to the riders. In case a vehicle is five years old than
the same is examined on half yearly basis.
The traditional transportation system of taxis is preferred by tourists due to their
serviceability in different locations. No different tiers of payments are applied by such taxis
and therefore the final rate or fare which would be charged remains a question.
Key differences between the two business models that effect taxation outcome:
The current tax laws pose a threat to the revenue which is generated by Traditional
taxi drivers in comparison to the Uber taxi services. This is because there are significant
challenges for tax administration for service providers to obey the tax obligations (Cheng,
2016). There can be difficulties in identifying the activities and the taxpayers in relation to
the service which is provided. This causes difficulties for tax administration in identification
of assessible income for sharing economy platform operators.
The difficult which arises is related to identification of whether the revenue is sourced
in Australia as there exists an insufficient obligation on platform to provide information
relating to tax management of registered service providers in association with payments given
to service providers (Rogers, 2015). This creates difficulties for the tax administrators in
identification of tax liability for such a platform. Even if the service providers are recognized,
income is generated by them using private property. As clear rules are not established, it
makes it difficult to recognize what is taxable and what is not.
The income which is generated by Uber drivers operating in sharing economy is
assumed that the income would go unreported from the riders who are operating in traditional
transporting system (Schneider, 2017). As per the survey which is conducted by TNS reveals
that around 15% of the digital operating drivers accurately discloses their revenues and more
than 46% of the drivers of the sharing platform hides their true income and shows that the

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income which is generated is lower than the taxation threshold. There is a difference between
the reporting framework between drivers operating between sharing economy and those
operating in traditional system. It is estimated that around 82% of the drivers operating in
traditional system, reported their income and most of these drivers also reported to the ATO
regarding the income which is generated from rented vehicles (Di Amato, 2016). There is a
significant challenge in enforcing tax compliance in sharing economy. It is even a fact that
some of the sharing economy drivers are not aware of tax compliance requirement of the
business.
The sharing economy aims at monetizing personal properties and assets in larger
amounts. Accordingly, in such a situation, there can be both personal and private use of the
assets in such a sharing platform (Barry & Caron, 2015). This mixed utilization cannot be
identified by tax administrators and therefore it is difficult to ascertain the asset is used for
business or private use. Therefore, the tax liability for the use of asset for private and business
use cannot be ascertained in a separate manner.
Major role is played by familiarity and self -assessment declaration in self-
declaration. As per a survey which is conducted by ATO, most of the drivers who had
planned to disclose their income through share economy platform are self-employed and have
the required experience in filing tax returns for the income generated or has taken help for
filing return for the services. This helps in self-assessment for the amount of taxes which
needs to be paid.
It is to be noted that sharing economy platforms allows individuals and businesses to
shift from formal sector to informal sector especially when the income and activities of such
businesses or individuals goes unreported. The Uber partner can increase the informal
segment rather than lower the same (Minifie & Wiltshire, 2016). If there is a shift for sharing

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economy platforms from formal to informal segment than the same would result in higher tax
impacts for the government as well as the transportation sector and customers. Therefore, it is
clear that there can be tax revenue losses for the government due to reducing base of tax.
Further there are other losses of income tax losses, security issues which is a major concern
for the government. In addition to this, there is also the problem of compliance for such a
platform and problems associated with Informal segments.
Tax consequences under existing Australian tax law
The major consequence related to the operations of sharing economy in relation to
current Australian tax law is lack of transparency and compliance with tax in the share
economy. This is the reason that ATO is unable to detect whether individuals are
underreporting their earnings to evade taxes or not (Beretta, 2017). The main reason for
insufficient information for sharing economy is because of the fact that drivers might not
function as independent contractor or might follow sel-employment which falls under the
purview of the current taxation system. This means that the taxes might not be withheld from
the income which is generated by Uber while in case of traditional system, the taxes can be
withheld. The shared economy owners do not have any obligation to report their information
regarding payments to ATO.
As per the case law of “Uber B.V v FCT (2017)” the court gave the verdict that the
services rendered by the Uber partner will be held as taxable services as per the definition
provided under “sec 144-5(1) of the GST Act 1999” (Altshuler et al., 2015). The court also
stated that Uber must get GST registration irrespective of their income earned.
The informative aspect of shared economy activities would make it less probable for
the sellers to understand the activities and even their own tax positions. The sellers operating
in shared economy might misinterpret the income which is generated as hobby income and

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thereby not report the sane. They might think that providing services for short term period
and occasional basis makes them not applicable for taxes.
Information relating to the income of the sellers operating in shared economy is not
available to ATO. In addition to this, there are numerous sellers operating in shared economy
who are not aware of the tax obligations which creates a gap in transparency relating to tax
information (Beretta, 2017). As per the self-assessment system of tax for traditional system,
the emphasis should be more on education and guidance on tax obligations. It would be very
difficult to make the shared economy sellers regarding their tax obligations and thereby
affecting the principles of tax compliances.
Conclusion:
The sharing economy carries the potential of revolutionising the way one purchases
and sells the services and how the market perceives this transactions. However, the
regulations is considered significant threat to the rise in growth of sharing economy. The
sharing economy may possess benefits for the government, individuals and customers by
providing wider choice, efficiency and flexibility, but also results in undesirable public
trends. In respect of tax, if the shared economy operators such as Uber are rightly captured
under the tax code, then it will be able to provide new, growing and reliable source of
revenues for the government. A large number of unique tax compliance code can be formed
through the sharing economy because of its digital nature. Regulating the sharing economy in
a correct manner can be very helpful in transforming the formal sector into the informal
sector with added source of revenues for the government.

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Altshuler, R., Harris, B. H., & Toder, E. (2014). Capital income taxation and progressivity in
a global economy. Va. Tax Rev., 30, 355.
Barry, J. M., & Caron, P. L. (2015). Tax regulation, transportation innovation, and the
sharing economy. U. Chi. L. Rev. Dialogue, 82, 69.
Beretta, G. (2017). Taxation of individuals in the sharing economy. Intertax, 45(1), 2-11.
Cannon, S., & Summers, L. H. (2014). How Uber and the sharing economy can win over
regulators. Harvard business review, 13(10), 24-28.
Cheng, M. (2016). Sharing economy: A review and agenda for future research. International
Journal of Hospitality Management, 57, 60-70.
Cramer, J., & Krueger, A. B. (2016). Disruptive change in the taxi business: The case of
Uber. American Economic Review, 106(5), 177-82.
Di Amato, A. (2016). Uber and the sharing economy. Italian LJ, 2, 177.
Frenken, K., & Schor, J. (2017). Putting the sharing economy into
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of neoliberal capitalism?. Ecological economics, 121, 149-159.

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Minifie, J., & Wiltshire, T. (2016). Peer to peer pressure: policy for the sharing
economy (No. 2016-7).
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