How Do Taxes Work for Rideshare Drivers?

Important Update

From 1/12/2017, Uber started invoicing as an Australian entity, paying GST to the ATO.

Although this has no effect on your net income for the quarter, it does reduce your weekly income by the GST amount and then give it back to you by a reduced amount owed on your quarterly BAS.

See the post Uber and GST Revisited for full details.

Tax obligations for Uber drivers.

GST and Income Tax for Uber Drivers

Uber drivers have to be concerned with both GST and income tax. It's vitally important to get both absolutely correct. Otherwise, you could be in for a nasty surprise further down the track.

GST

Everyone understands GST. It's 10% of your earnings, right?

No, wrong. For an Uber driver, there are 2 very important considerations. You must get them right and you must be able to provide the necessary documentation if you're ever audited by the Australian Tax Office.

More...

Important Consideration No 1: GST is payable on the total fare charged to the passenger, not just on the payment you get from Uber. This seems unfair, but has been held up by a court ruling after being challenged. It's because Uber isn't an Australian company and so doesn't pay GST. But GST is payable on the total value of the transaction so we have to pay it.

When you get your weekly Partner Payment Statement email from Uber, it will contain a link to the partner dashboard. Click this link and download (and retain) the invoice for "the services provided by Uber".

You can also download the payment statement. This shows the net amount paid into your bank account.

Let's say $480 was paid to you by Uber and the Uber service charge as shown on their invoice was $160.

This means that the total charge to your riders was $640 and it's this amount that is deemed to contain the GST that you have collected on behalf of the ATO. You work out the GST component by dividing by 11. In this case, it's $58.18. So Uber charged your passengers $581.82 + 10% GST = $58.18 for a total of $640. Which means what you actually got was $480 - $58.18 = $421.82.

Important Consideration No 2: Every motor vehicle expense paid to an Australian company, other than interest on your car loan or the lease repayment, contains a GST component. You are able to claim that GST back (or, at least, the proportion of it that your log book shows as business expense).

For example, if a tank of fuel costs you $77, then $7 of that is GST. If your log book shows that 96% of your driving is business related, then you will reduce your GST obligation by 96% of $7 = $6.72. Apply this to every expense and it soon adds up!

Income Tax

The net payments you receive from Uber form part (or all) of your income and so you have to pay income tax on it. Don't think you can get away with not declaring it. The ATO has access to Uber records and will use their computers to find anyone not including their Uber income.

BUT... think of your Uber-ing as a business. You have to do that anyway by registering a business name, getting an ABN (Australian Business Number) and registering it for GST.

So you're running a business and, as such, you have expenses and these expenses can be used to reduce your income, often to the point where you make a loss.

Now making a loss doesn't sound like a good thing, but in this case it is.

Why? Because it's the loss you make by claiming costs that you'd have to pay anyway, such as car servicing, repairs, new tyres and so on. Not to mention depreciation which, although it doesn't hit you until it's time to replace your vehicle, is nonetheless a real and legitimate cost.

So this business loss has the effect of reducing your income tax debt but has no impact on the actual cash that Uber driving puts into your bank account. That's why I say that rideshare driving is "cash flow positive but income negative".

Just remember that you can only claim that proportion of your costs that can be legally attributed to creating your income.

Important Consideration No 1:

Sounds Complicated

It sounds more complicated than it actually is.

But still, you have a choice.

Pay an accountant or do it yourself.

Pay an Accountant

If you choose to pay an accountant, you will need to keep all your Uber invoices and all your receipts for motor vehicle expenses. Depending on what method your accountant wishes to use, you may also need to record the distance travelled for all of your Uber trips. Don't fall into the trap of relying on Uber for this information as they will show only the distance travelled while carrying your passengers. You also need the distance covered while travelling to pick up your rider and also while driving around waiting for a ping.

Do it Yourself

I prefer to do it myself. I save the money that I would otherwise have to pay to someone else and I keep total control over the whole process.

But I also prefer to have my computer do the heavy lifting.

So I created two spreadsheets to do all the nasty calculations and you're free to use them too.

You can download my Vehicle Log spreadsheet to calculate the percentage of your motor vehicle expenses that you can claim. You need to record your business and private trips for 90 consecutive days and then you can use the calculated percentage for the next 5 tax years.

You can download my Income and Expenses spreadsheet to calculate both your GST obligation and your profit or loss. There's a space to enter the percentage calculated by the vehicle log spreadsheet.

If You Need Help

If you need help with any of this, just enter your questions below. I'll answer them as quickly as possible and even schedule a phone call if that's what it takes to get you started on this important topic.

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Phil Lancaster

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