Tax & ATO News Australia

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The GST Issue With Uber

The ATO recently announced their view that popular ride-sharing facility Uber is a taxi service for GST purposes. For those who are unaware, Uber is a platform by which private individuals can register and make their own vehicles available to the public, drive passengers to their desired location for a commercial fare, all via a simple smartphone application. While it has enjoyed phenomenal success and is available in 200 cities across 55 countries, this GST ruling is only the latest development in a long list of regulatory hurdles faced by the company.

Typically, businesses with a GST turnover of less than $75,000 are not required to be registered for GST. However, the exception to this rule is found in s 144-5 of the GST Act, which states that if you provide “taxi services” as part of an enterprise, you are required to be registered for GST, regardless of turnover. The ATO identifies three key points underpinning this approach:

First, it avoids the confusion that would arise if some taxis had to charge GST, and some did not;
Second, to avoid the issue of a passenger using a taxi on a business trip, which is a creditable acquisition for GST purposes, and wanting to claim an input tax credit against the GST included in the fare, but potentially being prevented from doing so; and
Third, the state authorities regulating traditional taxi services adjusted all meters to reflect GST after 1 July 2000. If only some drivers were registered for GST but all drivers collected this higher rate, it would disadvantage drivers who had to be registered under the ordinary $75,000 threshold but provided the same service.
This extends to taxi drivers, chauffeur-driven limousines, hire cars, and, now, Uber drivers. This means charging GST, lodging Business Activity Statements, and claiming Input Tax Credits for transactions entered into while providing “taxi services”.

While the object of the section is arguably to promote uniformity in the industry, the decision that Uber is part of this industry suddenly presents a huge compliance burden that did not previously exist for the company and its drivers. The company has since argued it is being unfairly targeted, and to find out whether this is the case, it is necessary to have regard to what precisely it is that the ATO considers a ‘taxi service’.

Guidance can be drawn from ATO ID 2002/23, which notes the term ‘taxi’ is not defined in the GST Act, and so the term should take on its ordinary meaning. To this end, the ATO referred to the Macquarie Dictionary 1997 definition, being ‘a motor car for public hire, especially one fitted with a taximeter.’ Applying this definition to Uber’s method of operation, it is certainly possible to consider Uber cars as being for public hire, and thus taxis for the purposes of the GST Act, with all the responsibilities that entails. By registering and providing your availability, any member of the public looking for a lift can simply request one through the Uber app on their smartphone, and the driver will meet them for pickup and drop off – ironically not dissimilar to the apps now available to request conventional taxis here on the Gold Coast.

It seems that while Uber has tried to take a revolutionary approach to travel-for-hire by pioneering the ride-sharing industry, for GST purposes, it’s actually nothing new at all - at least in the view of the ATO. With Uber strongly foreshadowing a legal challenge in reply, it will be interesting to see whether the courts share the ATO’s view, or whether they limit the scope of the term ‘taxi’ to the traditional metered model, and the impact that such a decision will have on this section of the transportation industry.

Posted in: Tax & ATO News Australia at 28 May 15

ATO not allowed to amend an assessment outside the two year period

For most individuals, the ATO has two years to amend an assessment after the individual has received the notice of assessment. Recently in Elliott, the AAT held that the ATO was not entitled to amend the taxpayer’s assessment outside of the two year period.

The taxpayer was employed as a pilot by a wholly owned subsidiary of Cathay Pacific. The taxpayer was in receipt of foreign earnings which he treated in his 2006 and 2007 returns as exempt. However, in Overseas Aircrew Basing Ltd, the Federal Court held that such income was not exempt and on this basis, the ATO tried to amend the taxpayer’s assessment outside the two year period.

The ATO argued that it was entitled to amend outside the two year period because the two year rule is qualified by the Income Tax Regulations 1936 (Cth). In particular, the ATO tried to rely on Regulation 20 Item 5 of the regulations which provides that the taxpayer has not identified income from one or more foreign transactions for the purposes of, or in the course of, the assessment. The ATO contended that the taxpayer had not 'identified' the relevant income because he had not 'identified' the income under the correct label in his returns.

The Tribunal found that, in the context of Regulation 20, the applicant only needed to identify in his returns an amount of income from a foreign transaction, as he had, and that he did not have to go the further step and make a correct assessment about whether that income was exempt or assessable.

I am pleased by the outcome of this decision as it prevents the ATO from pushing the boundaries on these time limits. It is also interesting that the ATO supports this decision. On 5 October 2012, the ATO released a Decision Impact Statement stating that, “[it] accepts that the Tribunal's view of the interpretation of Item 5 of Regulation 20, and its application of that view to the facts in this case, were properly open to it”.

Posted in: Tax & ATO News Australia at 08 May 13