When it is & isn’t a business – Myth-busting part 4
Continuing on from where we left off in our myth-busting series – but this time looking at some of the things you need to know about the sharing economy – from an investment/business perspective.
How does a hobby business relate to investment properties for something in the sharing economy like Airbnb?
So occasionally one comes across a business that is a business of rental properties (that’s not a real estate agency). Generally speaking though, unless you’ve got multiple investment properties, all running the same way, you wouldn’t call that a business. So, whilst you can have a business of rental properties, but they’re really very few and far between. Think large scale 20, 30, 40 properties all running on the same platform and they need again to be run in a very business-like manner.
The only way it could be a business in itself would be if you were actually providing a bed and breakfast as such in that you live in a unit out the back and you’re providing meals, etc. That certainly can be run as a business but then essentially you’re running a motel type of business.
But in saying that, the rules are similar to those surrounding an investment property. You’re reporting income including for the extra service of meals, etc and you’re claiming the running costs of food, electricity, interest on the property, etc. So although it’s a ‘business’, run in a business-like manner – even if it’s a side business, it still works as an investment property.
What about other sharing economy businesses like ridesharing?
Sharing economy services like Rideshare are a little bit different in that it would definitely be seen as a business, because you usually have to be registered with your ridesharing company of choice. Take Uber for example; there you’re providing a service, again even if it’s on the side.
You can claim the proportion of your expenses such as fuel, tyres, servicing and interest on your car if it’s under finance – but you can only claim the portion you use for business activities. Driving your kids to parties, going on holidays, etc doesn’t and shouldn’t count. You’ll need to keep a logbook to report your business usage.
Essentially you can claim anything that’s being used in the earning of revenue for your business. This might also include bottled water or magazines or wi-fi, etc if you provide those for your passengers whilst they’re travelling with you. You can also claim depreciation on your vehicle. BUT…and it’s a really big but, you MUST also be reporting any income you make to the ATO.
What about food delivery services?
Food delivery services, such as Deliveroo, are a little different. They’re usually subcontractors, so it can arguably be questionable whether they’re employees or contractors. In essence, you’re effectively earning a wage for hours worked (there’s a case being heard by the courts at the moment – so watch this space). However at the moment, the Deliveroos of the world like to argue it’s a contractor situation. So therefore, if you’re that contractor (even if it’s a side business), you’re running a small business. And if you’re therefore running a small business, it is likely to pay to run your business in a business like manner – which of course means reporting your income, keeping pristine records on claims, etc.
What if I’m using a company car?
If you’re using your car in your ‘regular’ job and your company pays for your car or you’re also receiving a car allowance – hold up!! If it’s a company car – you’re using someone else’s property and you’d best check with your employer and get their permission. If you’re receiving a car allowance, you’d best seek advice from an accountant about what you can and can’t claim in your ‘side gig’. Just know, you can’t claim the same vehicle expenses in two different places.
Do I have to report my earnings to the ATO?
In short, yes! Why? Because the ATO now has extremely sophisticated data matching in just about any place you might think you could hide money including PayPal, Stripe, overseas banks, Australian banks, etc. As we mentioned in the previous blog, the ATO are checking stamp duties and insurance records against reported earnings and if you’re suddenly buying and insuring an expensive car, jewellery, bike, etc – that will likely trigger a red flag at the ATO. And they will come looking.
In fact, we’re hearing rumours that the ATO are actively looking to find ‘missed’ revenue that hasn’t been reported. So if you know you’ve earned income and not reported it, now’s the time to get on the front foot and self-report. The ATO is likely to be more friendly if a mistake was made along the way and you’re now being seen to do the right thing. It doesn’t mean you won’t have to pay tax or a fine, but that’s so much better than the hell-fire that could result if the ATO have to dig to find any fiscal reporting transgressions.
And that’s where we can help. If you’ve earned money in the sharing economy and you’ve not reported it or your sharing economy business is now more of a going concern and you’d like some help in putting the infrastructures in place to enable you to grow now and into the future, we’d be delighted to help. You can contact us on 02 6023 1700 or drop us a note via the form below.
