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2020-02-29 23:39:58Self Employment TaxEnglishUnderstanding your tax obligations as an Uber or Rideshare driver can be challenging. Our helpful guide for Rideshare or Uber tax explains....https://quickbooks.intuit.com/au/resources/au_qrc/uploads/2017/05/Image-1-5.jpghttps://quickbooks.intuit.com/au/resources/self-employment-tax/tax-guide-uber-rideshare-drivers/Tax Guide for Uber or Rideshare Drivers | QuickBooks Australia

Tax time essentials for Uber: ABN, GST, and your new business

7 min read

In the past, starting a small business was a rarity. In today’s landscape, it’s possible for virtually anyone with the motivation and drive. For many small business owners, the role of Uber driver (or any ridesharing profession) has become a great way to earn a living while being your own boss.

Ridesharing, using a personal vehicle to take paying passengers to their destination, has become a great and efficient way for many people to be their own bosses.

But, most Australian businesses need an Australian business number (ABN). Since an Uber driver is essentially a small business owner, they need to be concerned with small business matters, like an ABN and taxes, too.

To ensure you’re set up for financial and business success, let’s take a look at everything required to operate as an Uber driver in Australia. Then, we’ll look at your business taxes and how you can go about paying them.

What’s an Uber ABN?

Because, as an Uber driver, you’re technically operating as a small business, you need to apply for an Australian Business Number (ABN).

An ABN is an 11-digit identifier that acts as an alias for your business. This number serves numerous purposes. It:

  • Represents your business on invoices
  • Can be used in place of your name when placing business orders
  • Allows you to create an official Australian domain site
  • Is essential to signing up for the goods and services tax (GST)

Individual employees at companies in Australia aren’t required to get an ABN, but any enterprise or business operating in Australia must have one. Because you act as a business owner within Uber, you need to register for an ABN as well.

How to get an ABN and register for GST

While you need an ABN, you also have to register for the GST and charge GST on every fare. This will allow you to declare your earnings, pay the tax you owe, and collect and claim GST.

Applying for an ABN and registering for GST are straightforward processes.

  1. Apply for an ABN via the ATO online portal, or have a tax agent handle the process for you. Either way, you’ll need your tax file number (TFN) to complete the process.
  2. Complete the online form, filling out each field required. If you’re using a tax agent, they’ll do this for you and instead ask that you bring them any necessary documents.
  3. If you’re approved for an ABN, you’ll receive it immediately. You’ll also receive a letter within two weeks that confirms your ABN status.
  4. If you were denied, contact the ATO and ask for further details.

Once you have your ABN, you can register for GST through the Australian Taxation Office’s (ATO’s) online Business Portal, by phone, or through your registered tax agent.

What is GST and how do you charge it?

Sure, Uber and other rideshare platforms present a unique opportunity for anyone with a car to earn some extra income or to work full-time. But, they also present a unique set of challenges when it comes to managing your taxes, including collecting GST.

GST is a tax that’s collected on most products and services sold in Australia. This tax is 10% and is typically built into the price of the product being sold. When your business collects GST, you can typically claim GST credits at the end of the year. These credits can help you receive an even bigger tax refund.

When Uber drivers became subject to GST, Uber increased its prices 10% in order to pass the GST charge onto customers. However, you still need to pass this 10% on to the ATO. Calculate the GST you owe on the full fare, not the net amount after fees or commissions are deducted. GST is charged at 10%. You can calculate how much of a fare is GST by dividing the total fare by 11.

So, say you earn $100 on a fare, then the GST payable is $9.09. The GST you pay to the ATO will be the total GST charged to your customers, which you will need to pay quarterly when you lodge your business activity statement (BAS). You can lodge and pay your BAS online, by mail, or in person at Australia Post.

To prepare for BAS payments, make sure you’re keeping accurate records that you can easily reference. You’ll also want to ensure you some money set aside, much like how you set money aside to pay taxes.

While this covers paying GST, the process of claiming GST credits is different.

Can you claim GST?

You can claim GST credits on any purchases related to your business, including buying or leasing a car, and the operating costs associated with running it, like servicing, repairs, and fuel.

The GST credit you claim will depend on whether your purchase (in this case, a car) is for business or personal use, or both. If you use your car for both professional and personal reasons, your GST credit will need to be calculated, divided, and apportioned accordingly.

So, if you bought a new car to use for your business 50% of the time, you can claim back 50% of the total GST you paid on the car in credits.

If in this example your new car cost $28,000 including GST, then $2,545.45 of that will be from GST ($28,000 ÷ 11 = $2545.45). You could claim $1,272.72, or half of the tax, as GST credits. Were the purchase only for business use, you’d claim $2,545.45, the full GST paid on the vehicle. This is essentially a write-off via GST credits.

The simplest way to work out the proportion of business and personal use and prove it to the ATO is by keeping a logbook. You can also use accounting software to automatically track and log your trips to save you the time.

What else is a business expense?

You can also offset any legitimate business expenses you incur against your taxable income. These include:

  • Uber or Rideshare facilitator service fees
  • Vehicle depreciation, such as car expenses and upkeep
  • Vehicle licensing and registration
  • Mobile phone bills where your mobile is used for business purposes
  • Vehicle cleaning
  • Vehicle insurance
  • Accountant, tax agent, or bank fees

To claim these deductions, you’ll need to prove each purchase was for business use or that it’s apportioned correctly, so keep detailed records. Accounting software tools make managing your expenses quick and simple, with the option to connect your business bank account, save your receipts, and generate expense reports as you need them.

Do you need to pay income tax?

If you make an income from Uber or another ride sharing platform, you will need to declare your earnings for the financial year in your tax return.

To calculate your taxable income, calculate your total earnings before any deductions or GST credits you may be entitled to. The rideshare that facilitates your business may be able to provide you with a record of your total earnings. Then, work out the expenses you’ve incurred and deduct these from your earnings. This is your taxable income. If you’re below $18,200 tax-free threshold for the year, you won’t pay any income taxes.

Most rideshare drivers operate as sole traders and thus pay income tax at the same rates as individual taxpayers.

How do you pay your income tax?

Declare your earnings and taxable income in your normal tax return. If you earn a regular income from ridesharing, you can choose to pay your income tax in smaller instalments to avoid a larger bill at the end of the year.

If you try to hide how much you’ve earned or don’t declare at all, you could face hefty penalties from fines and interest charges.

It’s a good idea to consider bookkeeping software. This software often takes the sweat and hassle out of lodging your BAS and preparing your tax return. You can often snap and store receipts electronically and easily log your business mileage. With the right information and tools to manage your income and expenses, you can make sure you don’t pay a cent more tax than you need to, while maximising your tax return.

Driving toward success

Once your ABN registration is out of the way and you have GST set up, you’re ready to drive toward a profitable, totally legal future as an Uber partner. With any tax obligations taken care of as well, you’re free to focus on building your Uber profile, delivering great service, and building a business that fits your schedule.

Now, go forth, put your car in drive, and enjoy the freedom and fulfillment that ridesharing and small business ownership provides.

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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