How new online economy tax changes could affect you

Garreth Hanley:
This is With Interest. A business, finance and accounting News podcast, brought to you by CPA Australia.

Dr. Jane Rennie:
Hello and welcome to With Interest. I'm Dr. Jane Rennie, general manager media and content at CPA Australia. Today we're looking at new reporting requirements for users of electronic distribution platforms. Now, at first blush, you mightn't think this affects you, but before you tune out, what if I were to name drop the likes of Uber, Gumtree, Deliveroo, Airtasker, Airbnb, and other online marketplaces?

Now have I got your attention? An estimated 250,000 Australians work in the online economy, which is sometimes also known as the gig sharing or barter economy. In fact, it covers more than 6.3 billion in annual consumer spending. New reporting obligations are being progressively rolled out from July this year. They'll apply to online platforms as well as service providers who use these sites. Joining me to explain the changes and what they mean for you is Senior Manager of Tax Policy at CPA Australia, Elinor Kasapidis. Welcome to With Interest, Elinor.

Elinor Kasapidis:
Thanks for having me.

Dr. Jane Rennie:
Elinor, I'll be completely honest with you, I feel like I've got skin in the game on this one as a regular user of several sharing platforms so you might detect a degree of self-interest in my questions. Now, it feels like the ATO has taken an increased interest in these platforms over the past few years. What has sparked this interest?

Elinor Kasapidis:
Thanks, Jane. As everyone knows, the growth in online platforms and e-commerce over the past decade has been significant, and that's given rise to two things. One is taking a look at the shadow economy. A few years ago there was a black economy taskforce, which included looking at undeclared income from sources such as online marketplaces. The other part of it is more broadly around where people are earning an income, they need to report it for tax purposes. So because of these permanent changes and the growth in the amount of money flowing through marketplaces, of course the tax office is interested.

Dr. Jane Rennie:
Well call me misguided, but I feel like most of the users are really probably small fry. I mean, is this a case of the ATO going after minnows when there are a much bigger fish out there to catch?

Elinor Kasapidis:
There are lots of people who use online marketplaces in different ways. So for some, they're conducting their entire businesses online and they earn their living from providing services or renting out their assets. For others, it might be sort of a side hustle or a small amount of income, but it still does need to be declared to the tax office.

Dr. Jane Rennie:
And how is the ATO monitoring people's activity on these sites?

Elinor Kasapidis:
So you could say that this is just a natural extension of the ATOs current data matching programme. The ATO is actually a world leader in gathering data from information sources and matching it to taxpayers returns. And Australians would be most familiar, for example, with the interests and dividends that pop up on our tax returns each year. So the tax office for almost the past decade, has actually been gathering data from chosen selected platforms and matching those for compliance purposes. This legislation and this new regime means that all platform operators will now need to gather and report this information.

Dr. Jane Rennie:
Before we go any further, I'd like to ask you to give me a bit of a 101 on the tax rules for online platforms and then we can go through the new rules. But the first thing I'd like to be clear on is who exactly are we talking about today?

Elinor Kasapidis:
So this legislation targets specifically service providers and those who earn income from lending or renting assets through online marketplaces and online platforms. It doesn't cover the sale of goods and it doesn't include financial transactions either. So when you think about that, there might be online workers who work as independent contractors, but you can also include people who earn small amounts of income from sharing or bartering or offering their services for odd jobs.

Dr. Jane Rennie:
Right, so little old me selling a food processor on Gumtree, for example, that's not caught by this new legislation?

Elinor Kasapidis:
No. So if you're selling your second hand bike or you're getting rid of some old textbooks or even a handbag, a designer handbag, you're selling it, that's not covered. But if you are lending those things and making income from it, so you might have a scooter that you're popping online and people can rent it for a day. You might have a share house and you've got a room at the back. They're the sorts of things that will get captured by this.

Dr. Jane Rennie:
What if you're only earning very small bits of money? So it's not your primary income, just little bits of money from these sites.

Elinor Kasapidis:
So like I said before, it doesn't matter whether you are earning a lot or a little bit, the tax office doesn't care. So even if it's your first job or your 10th job, they want to know about every dollar. So it's important for them that you're declaring all of your income and that way you're paying the right amount of tax.

Dr. Jane Rennie:
And broadly, what is the rule of thumb when it comes to paying tax on this sort of income?

Elinor Kasapidis:
Fundamentally, it comes down to did you earn accessible income? So it's the normal tax rules that you need to declare. And from that, you work out your taxable income by reducing it with your expense claims. So for example, if you're driving people around, you're doing odd jobs or freelance work, if you're renting out your car or even storage space and things like running social media accounts, all of that income does need to be declared.

Dr. Jane Rennie:
And you just mentioned expenses. So does that mean deductions? Can I claim deductions against the expenses that I incur while earning this income?

Elinor Kasapidis:
Yes. So once again, the standard rules for deductions apply. So if you are actually having to spend money in order to earn the money, those are the expenses that you work through. Now there are rules about how you deduct it and what you can claim. So it's important to get good advice as well. So for example, gig economy workers can claim deductions for costs incurred such as travelling, their vehicle depreciation, if you're an Uber driver, marketing, financing, and even home office expenses if you satisfy the requirements. Things you can only claim the work related or business related proportion of your use. So again, it really is important that you know the rules and that you're aware that if you are earning income, that you're most likely going to have to declare it to the tax office.

Dr. Jane Rennie:
And what are the sorts of reporting requirements that I'd also have to comply with?

Elinor Kasapidis:
So once again, it is around, this is about platform operators now telling the tax office about income that you probably should be disclosing right now anyway. So once again, take a look at where am I earning this income? A lot of people will talk about, "Oh, I have this as a hobby." Now for most hobbies, what you'll find is that you're probably spending more than you're getting back. You're not earning a lot of income and incurring only minor expenses. So that will tend to be how the tax office approaches it. And if you want to argue that you have a hobby and you're not earning income that's subject to tax, you'll need to be able to demonstrate that. So once again, it comes down to how do you do that? You have to keep records. So what I would advise is that make sure you do keep your expenses, your receipts, your diaries, because you may find that you'll need to be declaring this income and it's important that you can claim all your expenses.

Dr. Jane Rennie:
And right now, do platform operators currently have to assist with that record keeping or is the obligation entirely on the shoulders of the taxpayer?

Elinor Kasapidis:
Under our self-assessment regime, the obligation is always on us as the taxpayer. So when we lodge a return, even if we get help from a tax agent, it is up to us to get it right. So in that sense, no, the operators don't have an obligation. Having said that, some of them are already providing that data to the tax office and this is a formal way of getting everybody into it. So I guess really what the ATO has done is learnt from the larger providers from their data gathering activities in previous years. And through that black economy task force recommendation, this legislation has allowed them to now require these platform operators to collect and report information about their sellers.

Dr. Jane Rennie:
All right, so let's go into the new changes in a bit more detail. Broadly, what are the new reporting requirements?

Elinor Kasapidis:
If you're an electronic distribution platform, so an EDP and we'll just call them online service providers, you really have to gather sufficient information about the identity of the person who's selling through your system, follow the amount of money that they are earning, and then reporting that through to the tax office currently on a six monthly basis. So it's really around a reporting and a third party reporting regime. It's not changing the tax laws or any individual's tax obligations. But what it does do is introduce across the whole of the system an ability for the ATO to see who's selling and for how much in terms of services and rentals.

Dr. Jane Rennie:
Well, what does this mean or what does it look like for sellers? What will they have to do or what should they expect?

Elinor Kasapidis:
What we expect is as the online platforms work their way through these new rules. Some of them will already have information, sufficient information about their sellers to not require any changes. But for many it really is about gathering identity information. So that'll be a name, an address, potentially a date of birth or an Australian business number. And once again, the ATO will work with the platform providers to define what is required. So if I'm signing up and I want to sell my services, I like to paint walls on the weekend and I advertise, I will probably get asked a lot of information about my identity and that is because the tax office wants to know about it. That will become a requirement because it is a legal obligation for these platforms. Jackie Blondell If you're enjoying this podcast, you should check out our in-depth business and finance show, INTHEBLACK. This month in our career hack series, we're talking with recruiters, job market experts, and career coaches to get their advice on the best way to navigate 2023's employment and workplace landscape. Search for INTHEBLACK on your favourite podcast app today. And now back to With Interest.

Dr. Jane Rennie:
I think it's important to reiterate a point that you made earlier. So it's not a change in the amount of tax or whether or not someone pays tax if they earn income from one of these online platforms. So what would you just say to someone who's currently earning income from services but not declaring it?

Elinor Kasapidis:
I think it's safe to say that the ATO is going to start to take a much closer look to this kind of income earned from services and rentals. They're going to have a lot more information and it's going to be a lot easier for them to detect if the money's being earned and not being declared. So take a look at what you are earning and think about. You can amend previous tax returns and actually correct the information that you have provided. Those are called voluntary disclosures and that can reduce the amount of penalties that you might get. And certainly if you are unsure, go and seek advice from a tax agent, a CPA Australia Public Practitioner, and they'll be able to work through, is it a hobby, is it a business, is it accessible? What are your expenses and what records do you need to keep? And setting yourself up with that knowledge and that advice right from the start will put you in a really good position once this reporting kicks off from the 1st of July this year.

Dr. Jane Rennie:
And Elinor, is it the case that this can affect not just tax, so not just people who actually pay tax, but it could affect other payments as well?

Elinor Kasapidis:
Certainly because so much of our system, including social security payments and business grants are determined by taxable income. If you do end up getting caught and an adjustment is made, you may find that you have to repay other things that you've received from the government as well.

Dr. Jane Rennie:
What if I do provide online services, but I do that through an offshore platform. Will overseas providers be caught under the new changes?

Elinor Kasapidis:
Yes. A lot of the multinationals are actually overseas and sometimes you'll sign up to a website and you'll actually notice that it's incorporated offshore. For some of them, they're already doing this and reporting anything that's connected with Australia to the ATO. And, of course, the ATO will have good connections with overseas revenue authorities. What is interesting to note as well as that similar reporting regimes are being implemented overseas. So what we see happening in Australia, we often see in other similar jurisdictions. And what that means through their information sharing rules is that they can hoover up the data and then sort of separate it out and send it to the relevant countries. Over time, I think we're going to see that become increasingly sophisticated.

Dr. Jane Rennie:
And what are the consequences for not complying with the new rules?

Elinor Kasapidis:
It is law, which means that platform operators are obligated to comply and there are penalties that the ATO can impose on them for not properly complying with their reporting obligations. For sellers, this is the thing. If you get data matched and all of a sudden they find income that you didn't declare, they'll issue a new tax bill and there are penalties of up to 75% plus interest imposed on that. So it's really important to get it right. Don't wait till the ATO data matches your income, make sure you declare it in the correct way and pay the right amount of tax.

Dr. Jane Rennie:
When will these changes actually become law?

Elinor Kasapidis:
It's in two stages. Reporting from 1st July, 2023. So this year commences for taxi travel and short-term accommodations. So think of your Ubers and your Airbnb type services. Then the rest, which is a lot of different platform services that commences from the 1st of July, 2024. So really a lot of people who drive taxis and Ubers or rent out through Airbnb are probably already familiar or aware of their data being shared with the tax office. And from the 1st July, 2024, you can imagine things like services on Gumtree, Airtasker and those sorts of platforms will start to disclose regularly to the tax office.

Dr. Jane Rennie:
Given that the first of these new obligations starts only in a few months time, do you think people are ready for the changes?

Elinor Kasapidis:
I think that there's so much going on in the environment, it's really difficult to stay ahead. So implementation is always really important to take an educative approach and make sure that first of all, that the platforms actually understand what they need to do. Now, the bigger platforms, they have strong relationships and they can onboard things and perhaps they already have the systems in place. There is a process though that the smaller platforms, there's no minimum for this reporting obligation either for the platforms themselves or the sellers. So even if you only earn $2, theoretically, that will actually be sent to the tax office. So there's a really broad market that needs to be educated and the platforms have to get their software right.

Then once they've got that, of course all the sellers will need to provide updated information, some of them, once again through money laundering and other regulations may already have done so. But it really is then around making sure the sellers are providing the information and then once the tax office gets it, that's the really interesting part. So there are challenges around data matching that the ATO does have to manage, and that's making sure that you're matching it to the right person, making sure that the income or the dollars are actually for services or for rentals. And then often the tax law is complex. So there are other things like GST or withholding obligations that may arise. So it's not just a matter of saying, "Here's $10 that you didn't declare that we found." It's actually making sure that that $10 was actually required to be reported. Were there any expenses that need to be claimed against it? And were there any other obligations like GST that also need to be taken into account?

Dr. Jane Rennie:
Well, if someone's listening now who is currently a service provider using one of these online platforms, what advice would you give them?

Elinor Kasapidis:
I would recommend that you go and see a tax agent and make sure that you are classifying and reporting correctly. It's really important in that area, particularly if it's a side hustle or not your primary form of income or you haven't already been declaring it on your tax returns, you need to get that right. The other thing a tax agent can help you with is to understand how you can claim your expenses, which ones are allowable, which ones are not, and then making sure you have the right records in case the ATO does ask to see them. For tax agents, many of our members are tax agents and they are heavy users of pre-populated data or data that has been matched by the tax office. What's really useful is that it becomes really transparent about where clients are earning income. And so for tax agents who see data matched income from online marketplaces, it's really important to ask about that, to inquire about how it's being generated and any expenses that could be claimed against it.

Dr. Jane Rennie:
And earlier you mentioned the importance of the ATO taking an educative approach. What would that look like?

Elinor Kasapidis:
The ATO has a lot of experience with data matching, and this particular piece of legislation falls under what's called the taxable payments reporting system, which has already been applied to industries like cleaning and IT professionals, for example. So we would expect a similar role out, which is making sure that the platform operators know who they are, that they have these obligations, have enough support to set up the systems. And then also informing sellers and letting them know, "Hey, this is information that we're going to be collecting. Here are some of the issues that you need to think through." And if you look at the ATO website, they do have some guidance not just on this, but just also whether you're a hobby or a business or whether or not you need to be declaring income, what kind of expenses you can claim, and what kind of records you can keep.

Dr. Jane Rennie:
That's all we've got time for today. Thanks very much to our guest expert, Senior Manager Tax Policy, Elinor Kasapidis. A link to CPA Australia's submission to the ATO on electronic distribution platform reporting is included in the show notes. And as mentioned, we've also included a link to the ATO information page on the new sharing economy reporting regime. With Interest is a weekly podcast. If you like what you've heard today, why not subscribe on your favourite podcast app? From all of us here at CPA Australia, thanks for listening.

Garreth Hanley:
Thanks for listening to With Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in the latest finance business and accounting news. To find out more about our other podcasts and CPA Australia, check the show notes for this episode. We hope you can join us next time for another episode of With Interest.