Assessment of Shared Economy Providers' Tax Compliance in Australia

This report delves into the complexities of taxation within the shared economy in Australia, focusing on the compliance of providers with Australian income tax laws. It begins with an introduction to taxation, emphasizing its impact on businesses and the role of the Australian government in levying inc...Read More

Taxation Law and Practice

Table of Contents
INTRODUCTION...........................................................................................................................1
a) Shared economy providers compliance with the Australian income tax law..........................1
b) Improvement in the shared economy providers to meet the Australian income tax obligation
......................................................................................................................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The taxation is an inevitable factor for every business. The taxation part affects the
business very much like the structure of the business, their transaction and the income earned by
them. A tax is referred to as a financial charge which is levied or imposed on the income earned
by any individual, business organization or trust or charity and is charged by the government of
the country where the business is running (Pinto and Evans, 2018). The objective of charging the
tax is to earn revenue by the government to use that money to fulfil the needs of the public. The
government has bifurcated the tax limit or percentage according to the income earned by the tax
payers.
The income tax in the Australia is levied by the authoritative body which is federal
government of the country. The income tax earnings are the major source of revenue for the
Australian government. The first income tax in Australia was imposed in the year of 1884 in the
South Australia as a general tax on the income. The essay will outline that how shared economy
providers are complying with the Australian tax law. Also, it will highlight some measures for
improvement for the shared economy to meet their obligation towards Australian income tax
laws.
a) Shared economy providers compliance with the Australian income tax law
The shared economy provider refers to a systematic system wherein the two or more
countries share the different types of the services and the assets which may be either free of cost
or might have some charge or fees. The hidden income refers to the income which the person
keeps aside and does not record the income and does not pay taxes on that hidden income. This
system is gaining much importance in the emerging competitive world. It includes highly
negotiable and flexible system which allows all the people of the family and companies and
friends in order to share flexible working network where in the traditional people or employment
exchanges or private individuals share resources like the raw materials, equipment, technology,
skills, knowledge etc. many a time at the lower cost then the traditional cost (De Silva and et.al.,
2018). The example of shared economy are like Airbnb, Uber, Hipcamp etc.
Two shared economies and their system of taxation
Uber- For this company, the Australian Taxation Office specifies that if the company is
dealing in the taxi and travel or providing ride sharing services then the company is treated as the
sole trader and regardless of the quantity of the income which the business concern earns.
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The annual tax summary from Uber
 All the receipts, bills and statements for all tax deductible expenses
 The total vehicle mileage driven for the year that is the proof of the odometer reading
from the beginning of the year and at the end of the year
 Total kilometres driven by the driver
 The social insurance number (SIN)
 All other tax documents and slips related to other employment
The Uber drivers or any other similar type of taxi or ride sharing business is mandatory required
to have an Australian Business Number (ABN) and also needs to have registration for the Goods
and Service Tax (Payne, 2018). Now for the purpose of the income tax the company needs to
declare or show all the income it earns and all the expenses, but the company can claim all the
expenses relating to the ride sharing services provided by the company.
Airbnb- these are companies which rents out the rooms or houses or any unit like
Airbnb, Stayz and similar companies (Vandenberg, Jiang and Livingston, 2019). Companies
operating in this field can claim deductions in the same manner as if done in the case of having a
rental property. The expenses which can be deducted as claims are like interest on loan property,
insurance of the house, cost of keeping the house cleaned and maintained. Also, the cost of
having gas, electricity and council rated, all the fees and the commission which are charged by
the website or the application facilitators. The expenses which can be deducted at time of taxes
are pre- letting expenses, interest accruing in the period of purchasing of premises, expenses
incurred prior to the date of acquiring the premises.
For the sharing economy the payment received by the sharing economy provider is
known as the taxable income on which the tax is charged. According to the Australian income
tax law the taxable income includes the following-
 Income earned by the company by rendering the products and the services.
 Earnings from long and short term rent from a property.
 Also, the income earned by the sharing of some properties with others like caravan,
motor vehicles etc.
 Also, the income received from carrying on the business which is arranged through the
system of the sharing economy platform.
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The Australia's sharing economy providers are estimated to be of value $15.1 billion in
around February 2017 and nearly 10.8 million people that is around 60 % of people is deemed to
earned money from these sharing economies between July to 2017 December (Australian
Government The Treasury 2019). All these shared economy comes under the tax of GST which
is Goods and Service Tax. It is a type of value added tax which is imposed on the goods and the
services which are sold by the companies for their domestic consumption. The following are the
criteria for the Goods and Service Tax-
Under $75000- these criteria is applicable on the shared economy providers when their turnover
is below the Goods and Service Tax threshold limit of $75000 per year then the company or the
shared economy does not required to get itself registered for Goods and Service Tax. However,
the sharing economy can apply for an ABN that is Australian Business Number.
$75000 or above- these criteria is applicable on the shared economy providers when their
turnover is at or above the Goods and Service Tax threshold limit that is of $75000 per year and
at this level the company or the shared economy needs to get both the registration for the Goods
and Service Tax (GST) and also needs to have an Australian Business Number (ABN) number
(Australian Taxation Office, 2018).
The participants of the sharing economy can deduct their outgoings to the extent
to which they are incurred in gaining or producing the taxable income like operating costs,
depreciation, etc. Where the deductions exceed the income from sharing economy activities, the
resulting loss may be segregated under existing non-commercial losses' legislation (Badreldin,
2018). Where assets are used to generate income through the sharing economy, a proportion of
the gain on disposal of the asset may be taxable, and in some circumstances losses may be
deductible. This is because exemptions related to private or domestic use or main residence
exemptions may not apply.
Conclusion
All the shared economy providers does not comply to the taxation laws. Often there is a
lack of transparencies and the information related to the tax matters in the sharing economy. The
reason behind this lack of awareness by the sharing economy is that currently there is major lack
of information in relation of the tax matter in the context of the sharing economy. Because of this
lack of information it is very difficult for the Australian Taxation Office (ATO) to figure out that
whether the sellers of the sharing economy have really under reported their income or they are
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deliberately under reporting their income or due to lack of knowledge they have under reported
it.
b) Improvement in the shared economy providers to meet the Australian income tax obligation
Need for improvement
The sharing economy has grown significantly in recent years, facilitating innovation, job
growth and more choice for consumers. The sharing economy grows there is an increasing risk
that sellers (participants selling goods and services via sharing economy platforms) may not be
paying the right amount of tax. This potential underpayment of tax undermines the benefits of
the sharing economy to consumers and businesses, and creates an unfair playing field for those
doing the right thing. The ATO has entered into arrangements with some platforms to provide
information under its existing information gathering powers. Data collection in the ride sourcing
sector has enabled the ATO to undertake preventative activities that help drivers to understand
and comply with their obligations. However, a more comprehensive regime is needed to more
broadly improve compliance in this area.
In a research it has been stated that around two third that is 68 % of the Australian people
are earning money and spending money with the help of these sharing economies. The example
of shared economy are like Airbnb, Uber, Hipcamp etc. The shared economy is defined as the
organized and systematic method wherein the two or more countries share the different types of
the services and the assets which may be either free of cost or might have some cost or fees
(Mangioni, 2018). It includes highly negotiable and flexible system which allows all the people
of the family and companies and friends in order to share flexible working network where in the
traditional people or employment exchanges or private individuals share resources like the raw
materials, equipment, technology, skills, knowledge etc. many a time at the lower cost then the
traditional cost. This approach is gaining very popularity in the rising competitive world
(Popkova and et.al., 2019).
The sharing economy is known by many names like peer- to- peer, access economy,
collaborative consumption, collaborative production, common based peer production and many
other names. Recently the disruptive technologies have reduced the transaction cost of these
sharing economies which have lead to an immense growth in the sharing economy sector. The
sharing economy can also be referred to as economy of experimentation. To get the most out of
the sharing economy the country just needs to ensure that its finance markets, the laws and labor
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markets are much flexible and adaptable. Also, the sharing economy provides the entrepreneurs
with the maximum ability to develop new services and extract maximum value out of existing
resources so that the economy of the country increases.
One more reason for the success of the sharing economy is the culture (Singh and Singh,
2018). On the cultural grounds there is an immense and huge shift in the thinking of the new
generation people as they are more interested in the experiences over the things and the
immediacy over the security. The modern and advanced customers requires more flexible,
customized services and more flexibility in the usage of the services and the products. Now the
customers are more benefited by the sharing economy because the consumers are able to do
more by exchanging or sharing the items with others instead of buying the new ones without
incurring the cost of the capital which may incur at the time of purchasing the resources.
For improving the taxation and the sharing economy the two recommendations are as follows-
 one of the recommendation is that the Australian Taxation Office should improvise its
existing guidance in respect to the sharing economy in order to set out some common
circumstances such as where the sharing economy may have receipts which are likely to
be assessable income or a taxable income (Pha and Pearson, 2018). The revised
Australian Taxation Office guidance should also note that factors like periodical
involvement in the sharing economy, having other sources of income etc do not prevent
receipts from being assessable income. A clear statement in this regard would reduce
confusion, for example, about the hobby or the business distinction.
 Another suggestion is that the Australian Taxation Office must upgrade the existing
guidelines and should include some more additional information which is related to the
tax consequences of disposing of an asset used to produce sharing economy income
(Nelson, McCracken-Hewson, Sundstrom and Hawthorne, 2019). This revised subject
matter should include examples of common circumstances. The Australian Taxation
Office also must undertake measures to keep its guidance up-to-date with emerging and
new changes and developments in the economy and the surrounding environment and all
the new types of platform which are being offered in the sharing economy by the rivals
and the competitors. The Australian Taxation Office continues to proactively identify
issues that appear to be contentious in the application of the tax law to sharing economy
activities and publish clear views on such issues.
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CONCLUSION
After the thorough study of the whole essay it can be concluded that tax is an essential
source of the income for any government. Income tax is a type of charge which is charged on all
the individuals or the different types of the business organization which earns income (Hadi,
Abed and Kadim, 2018). The government uses the money raised by the tax charged up on people
to fund the different public services, helping the needful etc. The essay focused on how shared
economy providers are complying with the Australian tax law. Also, it highlighted some
measures for improvement for the shared economy to meet their obligation towards Australian
income tax laws.
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REFERENCES
Books and journals
Badreldin, A. (2018). Structural Impediments to Sustainable Development in Australia and Its
Asia-Pacific Region. In Pathways to a Sustainable Economy (pp. 43-57). Springer,
Cham.
De Silva, A. & et.al., (2018). Current issues with trusts and the tax system.
Hadi, A. M., Abed, A. R., & Kadim, H. O. (2018). The Role of Forensic Accounting and Its
Relationship with Taxation System in Iraq. Academy of Accounting and Financial
Studies Journal. 22(4). 1-10.
Mangioni, V. (2018). Land value taxation: Opportunity and challenges for funding regional
Australia and New Zealand. Australasian Journal of Regional Studies, The. 24(2). 191.
Nelson, T., McCracken-Hewson, E., Sundstrom, G., & Hawthorne, M. (2019). The drivers of
energy-related financial hardship in Australia–understanding the role of income,
consumption and housing. Energy Policy. 124. 262-271.
Payne, K. (2018). Taxation: Fix it up or trade up?. Company Director. 34(6). 52.
Pha, A., & Pearson, T. (2018). Parasite paradise: Tax in a system based on theft. Guardian
(Sydney), (1807), 6.
Pinto, D., & Evans, M. (2018). Returning income taxation revenue to the states: back to the
future.
Popkova, E. G. & et.al., (2019). Digitization of Taxes as a Top-Priority Direction of Optimizing
the Taxation System in Modern Russia. In Optimization of the Taxation System:
Preconditions, Tendencies and Perspectives (pp. 169-175). Springer, Cham.
Singh, H. S., & Singh, P. (2018). Command-and-Control to Responsive Regulation: Taxation
Administrations. GST Simplified Tax System: Challenges and Remedies. 1(1). 223-227.
Vandenberg, B., Jiang, H., & Livingston, M. (2019). Effects of changes to the taxation of beer
on alcohol consumption and government revenue in Australia. International Journal of
Drug Policy. 70. 1-7.
Online
Australian Taxation Office, 2018 [Online]. Available through :
<https://www.ato.gov.au/general/the-sharing-economy-and-tax/income-tax-and-GST-in-
the-sharing-economy/>
Australian Government The Treasury 2019 [Online]. Available through:
<https://treasury.gov.au/sites/default/files/2019-03/Consultation-Paper-A-sharing-
economy-reporting-regime-1.pdf>
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