Tag: GST

ATO warns ride-sharing drivers about GST obligation

From Smart Company.

The Australian Taxation Office has put the hard word on ride-sharing drivers and the wider gig economy, reminding drivers working for platforms like Uber about the importance of meeting their GST obligations next tax time.

The tax office determined in 2015 that ride-sharing and ride-sourcing drivers should be classified in the same way as taxi drivers for GST purposes, meaning they must register for an Australian Business Number and for the GST even if they are under the $75,000 threshold.

Uber appealed the decision in the Federal Court earlier this year but lost, and since then the ATO has been periodically reminding drivers of their tax obligations.

However, the tax office says the message isn’t getting through, with ATO assistant commissioner Tom Wheeler saying in a statement that the tax office has notified over 120,000 ride-sharing drivers over the past 18 months regarding their tax obligations.

“We know that most drivers do the right thing, and we are now focusing attention on the minority of drivers that are not currently meeting their obligations,” Wheeler said in a statement this morning.

“Our message to taxpayers is that if you have a ride-sourcing enterprise you must get an Australian Business Number and register for GST as soon as you start driving. You also need to include the income on your tax return at tax time.”

Wheeler notes the ATO is sourcing information “directly” from banks and facilitators, and warns “we know who you are, and we know if you aren’t correctly meeting your obligations”.

“This isn’t a black economy issue,” says Lisa Greig, SME and start-up tax specialist at Perigee Advisers.

“The money’s going through Uber and into a bank account, [and] it will be found.”

Companies should remind workers of GST obligations

Wheeler says if ride-sharing drivers who have not registered for GST continue to ignore the ATO’s prompts, the tax office will register the drivers itself and then backdate the registration to their first ride-sharing payment.

“[The drivers] will be required to lodge and pay all outstanding tax obligations. Penalties and interest may also be applied,” he says.

Greig tells SmartCompany she believes many of these outstanding cases would be drivers who maybe did a few trips for a ridesharing app over a couple of weeks, made around $60 dollars, and then haven’t driven again.

“Those people still have to be registered for GST,” she says.

Businesses who employ a significant number of these ride-sharing type contractors – such as Uber – should have a “duty of care” to inform workers of their GST obligations, believes Greig.

SmartCompany understands Uber drivers are directed to the ATO’s ride-sharing information page and notified of their obligation as part of the signup process, but Uber is unable to sign them up when a driver registers on the platform, because Uber not a registered tax agent.

Other companies working with similar types of contractors should take a similar course in informing them about GST obligations, because companies should make it “as simple as possible” for workers.

However, one reason the ATO is having to chase people now might come down to the slackness of the drivers, Greig says, suggesting that signing up for an ABN and GST would likely take less time than signing up to drive with Uber.

“People who forget to register for GST are like those people who forget an old bank account has $2 of interest in it when it comes to tax time.”

Looking to the future of tax reporting, Greig says it won’t be surprising if Uber driving income is automatically detected by the tax office in future.

“But with where this is all going, in the future all your ride-sharing data will just get populated in MyTax come tax time and you won’t have to worry.”

What an equitable GST reform package should look like

From The Conversation.

Discussion of an increased GST at this week’s leaders’ retreat is based on two motivations.

Firstly, state governments expect future structural budget deficits if they are to meet growing outlays for expenditure on health, education and the national disability support scheme.

Second, as argued in the 2010 Henry Review and the current Re:think review, tax reform including an adjusted GST would contribute to a more productive and larger economy. A larger economy directly means more taxation revenue. Also, a larger economy is required to support entrenched community aspirations for more and better government services as well as more private expenditure.

There are pros and cons to a larger GST. On the positive side, relative to income tax and state stamp duties, a broad based consumption tax is a less distorting and costly tax to raise government revenue. On the negative side, a GST is a regressive tax which is passed forward to households as higher prices.

Balancing the pros and cons of a larger GST requires a package of tax changes, as was the case with the introduction of the GST in 2000.

The package would include:

  • a larger GST, involving a broader base, a higher rate or both
  • the replacement of existing high distorting state indirect taxes, including stamp duties
  • the recycling of some of the increased GST revenue as higher social security rates and a lower and more progressive personal income tax rate.

The latter would offset the regressive distribution effects of the GST. Specific details of the reform package should be topics for detailed assessment and then community discussion.

Manage the fairness issue

GST funds collected by the Commonwealth, net of administration costs, are currently distributed as general purpose, or non-tied, grants to the states (and territories). The allocation formulae is designed to meet an equity objective so that if each state applied a similar tax system it could provide a similar level of services to its citizens, referred to as horizontal fiscal equalisation (HFE).

The base of the current GST represents just under a half of a comprehensive measure of consumption expenditure. New Zealand’s GST is more comprehensive.

In Australia the main exemptions are fresh food, education, health, child care, water and sewage, and imports valued at less than A$1000. While these exemptions provide an element of progressivity to the GST, the effect is relatively small. Lower income households in general allocate a larger share of their expenditure to the exempt items. But, higher income households spend many more dollars on the exempt items.

The progressive income tax system and the means tested social security system are better targeted and more effective ways to redistribute income to meet social equity objectives.

Australia’s 10% GST rate compares with 15% for New Zealand, and above 20% for many European countries.

Broaden the base

Additional GST revenue could be collected if the base was broadened by removing some to all of the current exemptions, by raising the rate, or both. Either option could generate a similar additional revenue stream. For example, removing all exemptions would double the revenue stream, as would a doubling of the rate to 20%.

In terms of efficiency and simplicity, the base broadening option has the advantage.

On an equity basis, there is little difference between an approximate revenue neutral larger GST tax base and a larger GST tax rate. Why treat a necessity food now exempt different to a necessity clothing now taxed, or a utility electricity now taxed but not water now exempt?

While the current exemptions from the GST base add an element of progressivity to the GST when compared with a comprehensive base, the redistribution effect is small.

The main categories of GST exempt spending are fresh food, health, education, rent, and financial supplies. Re:think discussion paper – Treasury estimates using ABS 2011, Household Expenditure Survey 2009-10, cat. no. 6530.0, ABS, Canberra

More importantly, appropriate increases in social security rates and reductions in lower income tax rates as a part of a tax reform policy package are more direct and better ways to achieve distributional equity with a broader tax reform package.

Scrap inefficient state taxes

The revenue gained from a larger GST could be used to replace more distorting and inefficient state indirect taxes. A revenue neutral package would generate large productivity gains and some simplicity gains with minimal changes in equity and distribution of the aggregate tax burden.

State taxes that should be replaced include stamp duties on insurance, and perhaps a component of a wider reform package to replace conveyance duty on the transfer of property with a broad base and higher tax rate on property. Both the ACT and SA have begun a reform package to replace conveyance duty.

A GST reform package would change Commonwealth-state financial relations. Government leaders would have to resolve both the split of aggregate revenue from the reform package between the commonwealth and the states, and then the distribution of the aggregate revenue gain to the states between the different states. Clearly, there would be very different views about the plausible options to do this.

Author: John Freebairn, Professor, Department of Economics at University of Melbourne