A sharing economy tax reporting regime needed

We support the Black Economy Taskforce in tackling the issues arising from black economy activities to level the playing field for taxpayers. Therefore, we welcome the government’s initiative to explore options for a reporting regime for those individuals who participate in and who derive income from the sharing economy.

In our submission to the Black Economy Taskforce’s ‘A Sharing Economy Reporting Regime’ consultation paper, we maintain that as these platforms are now a societal and economic norm, the necessity for a reporting regime to tackle the underreporting of income by participants is long overdue.

Further, such a regime will also level the playing field for small businesses that compete against those participants in the sharing economy whose activities may not necessarily be captured as a result of non-compliance.

Our preferred option for introducing a reporting regime, as considered in the consultation paper, is for the sharing economy platforms to directly report the relevant information to the Australian Taxation Office (i.e. Option 1).

Notwithstanding that the information required may vary depending on the platform and the goods and services it provides; in our view this is the best option as the platform (i.e. the entity making the payments) is best placed to provide the transactional data. This would be similar to obtaining payroll data from an employer and we consider this to be the most appropriate and accurate “source of truth” for reporting purposes.

As such, we do not believe that the alternative option proposed of having financial institutions report such information would be appropriate. We concur with the views outlined in the consultation paper that the relevant information and data sets required from financial institutions in identifying the source and nature of the income credited to an individual from transacting in the sharing economy may not be available or are not appropriate.

In any case, any banking transaction data could still be obtained through the Commissioner of Taxation’s current information gathering powers to support any data matching activities.

We believe that the reporting regime should extend to all sharing economy platforms, which not only includes the provision of services (such as Airtasker and Uber) and rental of assets (such as Airbnb), but also include platforms that allow for the sale of goods online (such as eBay or Gumtree). This would make the reporting obligation fair and equitable across all sharing economy platforms.

While there is a keen desire for the data obtained from the sharing economy platforms to be pre-filled in an individual’s tax return, such data obtained must be sufficiently robust to provide confidence in the reporting regime. Requiring the taxpayer or tax agent to amend incorrect or incomplete labels creates a “reverse work flow” and an unnecessary compliance burden. Tax agents can seldom charge for this service as clients invariably do not believe it is a cost they should incur.

As such, it would be only appropriate for transactional data from the provision of services to be included for tax return pre-filling purposes. The same cannot be said for those who sell goods online or who derive income from the use of assets, which will require additional information and an assessment of the individual’s circumstances.

In some cases, it would be more appropriate to flag transactions in the tax return rather than to pre-fill labels so as to allow for discretion to be exercised by the taxpayer or their tax agent as to its tax treatment.

Rather than a single standardised form to collect the necessary data, we envisage that there may be a number of standardised forms to account for the type of activities that are being conducted by the sharing economy platform (e.g. services rendered vis-à-vis goods sold).

Other aspects of a reporting regime under Option 1 that warrant consideration include:  

• While the consultation paper recommends that reporting be conducted annually, there is scope to increase the reporting frequency by sharing economy platforms given that the relevant data is typically captured and stored digitally. The benefits of increased compliance costs must be weighed against the reporting costs to the platforms.
• We don’t consider that there should be exemptions for any sharing economy platform (even if they were a ‘start-up’). We don’t believe that small entities would be disadvantaged from having the reporting obligation imposed given their abilities to deal with data digitally.
• While this is outside the scope of the consultation paper, we believe that a withholding regime may be warranted where the sharing economy participant fails to disclose their tax file number to the platform. This would be most relevant for platforms where the participant is a service provider.

Although it is critical that sharing economy participants understand their tax obligations, we have observed that some participants may be conducting activities unaware that they are prohibited under some law or regulation. Some examples include:

•  An individual providing tax return preparation services on Airtasker not aware that they must be registered with the Tax Practitioners Board as a registered tax agent before they can do so.
•  A tenant sub-letting a room in their apartment to an individual unaware that their lease agreement expressly prohibits the sub-letting of the property to someone else.
•  An individual who leases their street parking permit on Parkhound to an individual unaware that their local municipal council prohibits such activity.

While we support a reporting regime for the sharing or gig economy, our overriding proviso is that it must be robust enough to ensure that tax practitioners can suitably rely on the information that appears against taxpayers’ profile for tax purposes.

Tax practitioners should not be responsible for information that is not disclosed to them.

So, if a taxpayer is asked ‘do you earn any other income?’ and the response is no, then this should be able to be relied upon by the practitioner in the absence of any third-party data that contradicts such an assertion.

Tony Greco FIPA, general manager of technical policy, IPA