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taxes

Your guide to Uber GST: How to collect and pay taxes as a driver

Uber has changed the game. With a mobile phone and a car, anyone can become a ridesharing aficionado. For drivers, this gives you the power to run your own small business, set your own hours, and meet a constant stream of new people. However, as much as we might like to, we simply can’t take the money and run (or call an Uber!).

Simply put, there’s no excuse for being unaware of your own tax obligations as an Uber driver.

The ATO issues severe penalties for failing to meet tax obligations, which can range from hundreds to thousands of dollars. While there’s no specific Uber tax per se, the ATO has declared that all Uber drivers need to register for GST (goods and services tax). But, there’s no need to worry (or hurriedly arrange a meeting with a tax professional).

As an Uber driver, complying with the ATO’s tax obligations — and tax planning more generally — can be a quick and easy process provided you follow the 5 basic steps detailed below.

Step 1: Apply for an ABN and register for GST

Every person or entity operating a business in Australia needs an ABN (Australian Business Number). You can apply for an ABN online via the Australian Business Register website, and there is no fee for ABN applications. Once you have your ABN, GST registration is a piece of cake.

I know what you’re thinking: ‘Wait, is that all the admin I have to do?’ Unfortunately not. As a business owner, you also need to establish a way to interact with the ATO going forward.

How to get in touch with the ATO

There are a couple of options here. You can deal directly with the ATO if you so choose, though many individuals and businesses instead ask a business activity statement (BAS) agent or an accountant for help (and for tax advice more generally).

The easiest way to deal with the ATO directly is through the Business Portal, an online application provided by the ATO where you can manage your registrations, and view and send business information to the government.

In the past, to be able to access the Business Portal, you needed to first apply for an AUSkey — a secure login that identifies you when you use the Business Portal.

However, as of March 2020, AUSkeys are being retired and replaced with myGovID for individuals and with Relationship Authorisation Manager (RAM) for businesses.

The Australian Business Register (ABR) website is a great resource if you’re looking for further information on registering for, setting up, or managing either a myGovID or RAM.

Right, now that you’re done with the admin (for now), it’s time to make sure you understand what this tax law actually entails, and why it applies to you. You don’t want to be blindsided by hefty, unexpected bills from the ATO, so it’s crucial that you’re aware of your tax obligations.

New GST obligations & BAS Requirements

Uber first fell foul of the ATO back in 2015 over the tax office’s decision to apply GST to all their drivers. This battle raged on until 2017 when the Federal Court decided once and for all that ride-sourcing is indeed taxi travel.

And, under Goods & Services Tax (GST) law, if you carry on a business that provides taxi travel services, you’re required to register for GST.

Other types of businesses are only required to register for GST if they earn in excess of $75,000 per year. However, Uber, taxi, and other ride-sourcing providers are obliged to register for GST regardless of their business income and Uber earnings.

Not only does this mean more admin for you, it also means your customers have to pay more for your services. Argh.

However, the good news (if you can call it that) is that Uber actually went ahead and raised their prices by 10% back in 2015 to cover the cost of GST. If you’ve only begun working for them in the years since, you were probably blissfully unaware of this. It’s a small consolation, but a consolation nonetheless, that the customer will already be paying the extra 10% — not you.

You might feel slightly hard done by — you know what, we get it. After all, why are Uber drivers being singled out and forced to pay GST? Do other businesses have to pay it too? As it turns out, yes they do.

So let’s look into GST in a little more depth so you can understand what it is that you’re paying.

What is GST?

GST (Goods & Services Tax) is a 10% tax applied to certain goods and services sold here in Australia. You might not even know that it exists, given that it’s usually already included in the price of what you buy.

As a contracted Uber driver, you are seen as running a business — so you need to know all about GST. Once your business is registered for GST, you then need to account for GST in your gross income from Uber.

Essentially, whenever any customer pays you, 10% of that is technically not yours to keep — it’s GST. So if a customer pays you $10 for a trip to the centre of town, you have to give $1 of that away to the ATO as GST.

However, it’s not all bad news — you can also claim credits back from the ATO for the GST included in the price of purchases you make for your business (such as fuel costs). Let’s run through how this works.

The economy would tank if the private sector suddenly collapsed. To help businesses stay afloat, the ATO allows them to claim back GST credits on any work-related expenses.

These tax-deductible purchases are called allowable expenses.

So, how does it work for Uber drivers?

You need fuel in order to run your business, right? If you didn’t have any fuel, you wouldn’t be able to operate.

Imagine you spent $100 on filling up your tank. Out of that $100 expense, 10% (so $10) would be GST that’s included in the price — after all, fuel falls under the bracket of a good or service that’s sold to consumers.

Given that fuel is a necessary business expense, you can claim back the amount of GST you paid (in the form of tax credits).

So, on one hand, you have the GST that you owe to the ATO. On the other hand, you have the amount of GST that the ATO owes you. How does this work itself out?

When you calculate the GST that you need to pay to the ATO, you take the portion of GST you receive from your Uber income (i.e., from your customers), then deduct the amount of GST you paid out in your various expenses and purchases.

The balance left over will equal the GST that you need to pay to the ATO. So, let’s look at how you can actually go about paying your GST.

How to report your GST

GST is reported to the ATO on a Business Activity Statement (BAS), and either yourself, a registered BAS agent, or an accountant can lodge a BAS on behalf of your business.

Lodging a BAS itself doesn’t cost money, but the amount of tax that you owe (as a result of your BAS) will have to be paid -— the due date for this payment is shown on your BAS itself.

Businesses generally lodge their BAS each quarter, though you are also able to lodge on a monthly basis (which may help you work out your cash flow).

The easiest way to lodge your BAS is by using the ABR’s Business Portal. For additional information on lodging your BAS, speak to a registered BAS agent, an accountant, or the ATO.

Lodging a BAS is a fairly easy process if you keep your business records up to date. This is a crucial business practice, so let’s look at how you can stay on top of your records going forward.

Step 2: Record your income and expenses

Now that you have registered and set up your business for GST, you will need to start tracking your income and expenses.

It’s important to track all business expenses and keep hold of your receipts. If you do, you’ll be able to claim back a significant portion of your expenses each year.

What expenses incur GST?

The world of what includes or doesn’t include GST can be a little confusing. However, most of the expenses you incur while running your business have GST included in the price.

Common items that don’t have GST include bottled water and bank interest payments. If you’re looking for more information, an online search is available on the ATO website. Otherwise, contact your BAS agent or accountant for further information.

How to calculate GST

The set rate for GST is 10%. To calculate the GST portion of your income or expenses, take your gross figure (the total amount you have received or paid) and divide that figure by 11.

The sum will equal the GST component. For example, say my annual car registration cost is $670. To find out how much GST is included in that price, I divide $670 by 11, which equals $60.90.

This means that from my total expense of $670 for car registration, $60.90 was the GST component.

Some instances when GST is not 10% of a bill

Though the rate for GST is strictly 10%, there might be times when you receive a bill where some of the items are subject to GST and others aren’t — so it’s always good practice to check your bills and receipts in detail.

Separating personal and business expenses

There are several techniques you can use to separate personal and business expenses, such as setting up a separate bank account for the business or using separate shoeboxes to store your receipts.

However, if you actually do the latter, it’s time to rethink your strategy. We’ve sent astronauts to space. We can use a mobile phone to speak to anyone in the world. We eat food grown on another continent. There are better options than keeping your business records in a shoebox.

An accounting app is by far the easiest way to stay on track. An app can connect with your bank to import your transactions, so you can easily categorise your expenses and income as either personal or business.

However, when you’re a sole trader, it’s sometimes not so easy — one bill or expense could be for both personal and business purposes. You need to only report business-related GST to the ATO. Calculating how much of an expense is business-related will depend mostly on the expense.

The easiest way to stay on top of this is by keeping a diary. For example, if every time you purchase a ream of paper you tend to use about one-quarter of it printing out your Uber statements, then you should simply claim one-quarter of your total paper and ink expenses as business purchases.

Calculating your business telephone and data usage is just as easy. Start by taking your last three monthly bills (provided you’ve been driving for Uber for the past three months). Having 12 weeks of records makes the maths fairly easy.

Highlight each of the Uber-related calls on your phone bill. If you made 300 calls in total over the past three months and 90 of those calls related to driving for Uber, then 30% of your phone bill is business-related.

This applies to your data usage, too — if you have a rough idea of how much data you use each day, and what portion of this you use at work, then you can claim back this cost. If you’re using a piece of accounting software, you can set rules to automatically split your regular expenses by the appropriate percentage.

To be able to claim a deduction on any vehicle expenses, you or your partner must own or be named as the lease or hire purchaser of the vehicle. The ATO has provided a calculator to assist sole traders with claiming home office expenses, so visit their website for further information or contact a registered BAS agent or accountant.

Recording income & expenses

Tax law states that all records need to be kept for five years following the lodgement of your tax return — either in hard copy or electronically. A simple way to record your income and expenses in hard copy is to use an exercise or ledger book.

Divide up your book so there are 5 columns on one side and 7 columns on the other side (as per the picture below). Once you fill out all your income and expense details in the ledger, it can then be used for reporting GST on your BAS, as well as for lodging your income tax return at the end of each financial year.

As a handy hint, flip a page in your book and use a separate sheet for every quarter or month (depending on how often you report your GST).

Of course, you might want a quicker and more effective way of recording your income and expenses, so consider using an online program or app. For a minimal monthly subscription fee (and yes, you can claim the entire fee as a business expense), you can record your income and expenses on your computer, tablet, or smartphone. Plus, you can capture images of all your receipts — meaning no more hoarding shoeboxes!

Step 3: Track your car expenses and mileage

Uber contractors can select between two different methods for claiming car expenses depending on what suits you best. The first method is ‘cents per kilometres travelled’, with the current rate being 68 cents per kilometre.

If you’re claiming less than 5,000 kilometres for the year, then you can be reimbursed to cover expenses for general running costs, including fuel and oil, insurance, servicing, maintenance, and depreciation. To work out how much you can claim, multiply the total business kilometres you travelled by the current rate (0.68).

The second method you can use to calculate car expenses is the logbook method. If you’re claiming more than 5,000 kilometres each year, then you must keep a logbook for a 12-week period — this information will then be used to calculate your estimated annual vehicle expenses.

What’s more, pre-printed logbooks can be purchased from most newsagents around the country. To establish a logbook for a three-month period, simply enter your odometer reading at the beginning and end of each trip and mark ‘Personal’ or ‘Business’ as appropriate.

Remember, you can only claim for the kilometres travelled that are related to providing ride-sourcing services and earning that income. This includes driving to pick up a customer and to fill up with fuel.

Of course, logbooks can be time-consuming to keep and are easily lost. If you’re looking for a more reliable method that’ll also save you a considerable amount of time, then track your mileage using a nifty piece of accounting software.

Look for software that offers automatic GPS mileage tracking to automatically record every trip. Then, all you need to do is categorise each trip as personal or business.

Tax deductions: Which trips are deductible?

You cannot claim a tax deduction for the private use portion of costs associated with running your vehicle. Tax-deductible expenses that you can claim include the cost of:

  • Fuel and oil
  • Cleaning
  • Repairs and servicing
  • Interest on a motor vehicle loan
  • Lease payments
  • Insurance
  • Registration

If you run your business from home, you can generally claim the cost of trips you make between your home and other places — provided you made the trip for business purposes.

Step 4: Report your income, lodge your BAS, and pay your GST

It’s always important to allow sufficient funds at the end of the financial year — after all, you don’t want to be hit by a nasty (and unpayable) bill from the ATO.

Remember that income tax is separate from the GST that you pay in your BAS. To help you save for your income tax, it might be a good idea to open an online bank account where you can deposit a certain percentage of your income each month.

If you want to make sure you stay on top of all your tax obligations, consider creating a handy tax calendar and pinning it up at home.

PAYG instalments & prepaid tax

Another way to save for income tax is to make PAYG instalments in addition to your BAS payment. PAYG instalments is a system for making regular payments towards your expected end-of-year income tax obligation. You can choose between one of two options for calculating and paying PAYG instalments.

Option 1: Instalment amount

This option is an amount calculated by using the income from your last year’s income tax return. The benefit of this method is that you’ll know the precise amount of each instalment every quarter.

Option 2: Instalment rate

This option allows you to calculate your PAYG instalment amount based on your actual current income. The benefit of this method is that the amount you pay reflects your present income, not on whatever you earned last year.

Report and lodge BAS (business activity statements)

If you applied for an AUSkey, myGovID, or RAM — as outlined earlier — you will see a new statement appear in your Business Portal each quarter or each month (depending on your arrangement). However, it’s worth noting that you can also apply for a paper BAS if you so wish.

On a BAS, you report your total income and the associated GST, as well as your total amount of expenses and the associated GST.

The difference between the two figures is either payable by you to the ATO or owed to you by the ATO (if you have spent more than you have earned).

If Uber driving is your second income and you have other primary employment, you don’t need to include earnings from your regular employer on your BAS. You’ll declare those earnings at the end of the financial year.

Of course, this is assuming that your other income is from an employee arrangement (i.e. you work for a company that you don’t own). If it is from another business or sole-tradership that you own, then you will have to include this in your BAS.

If this all seems like a lot to take in right now, don’t worry — we’re going to outline how you can make this as easy as possible going forward.

How can I make my tax obligations even easier?

As well as using bookkeeping apps, consider consulting regularly with a registered BAS agent or tax advisor.

Registered BAS agents or tax advisors can assess your business and find tax deductions you may not even know about, lowering your tax bill in the process. They can also review your expenses to ensure you’re claiming the correct rate of GST credits.

Depreciation is another deduction that a bookkeeper or accountant can consider to further reduce your tax liability. Depreciation essentially assigns a portion of your vehicle’s (or other assets’) reduction in value as an expense each year.

For example, let’s say you purchase a vehicle for $35,000. In five years’ time, that same vehicle may only be worth $17,000 as it is a depreciating asset and will be subject to a natural amount of wear and tear.

The difference between your vehicle’s expected value at the end of the five-year period and the price that you originally paid is $18,000. This money can be seen as an expense to your business, even though you are not physically paying out any money.

Once the car no longer works (or isn’t working to the standard needed), you’ll need to buy a new one. So what?

Well, the concept of depreciation relies on the assumption that at some stage you will need to pay a hefty amount of money in order to replace the car. By offsetting some of the depreciation of the car’s value with tax deductions, your business can soften this eventual financial blow.

In this example, the $18,000 of depreciation will be divided by the five years you’ve had the car — leaving $3,600 per year that you can claim as a depreciation expense.

If you use this car 50% of the time for work purposes, you’ll be able to claw back a saving of $1,800 per year.

Not bad, right?

Step 5: Consider using a piece of accounting software

If you want to kick back and enjoy your Uber income knowing all your bookkeeping obligations are met, consider using an accounting software — a one-stop-shop for recording your business’s finances.

Uber GST simplified

Tax can sometimes seem complicated (especially if you’re self-employed), but it doesn’t have to be. It’s our goal to be an easily-accessible, perfectly accurate, and constantly up-to-date source of information for all your tax questions — whether you’re one of our customers or not. So having read our guide on all things tax-related for Uber drivers, you can go out and run your business with confidence.

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