The Black Economy Taskforce (the Taskforce) was established in December 2016 to develop a forward-looking, multi-pronged policy response to combat the black economy in Australia. The Black Economy Taskforce’s final report (the Taskforce’s report) highlighted the harm that the black economy causes to businesses and the community, penalising honest taxpayers, undermining the integrity of Australia’s tax and welfare systems and creating an uneven playing field for the majority of small businesses doing the right thing. This impact is being felt by many businesses and consumers, including those in the sharing economy.
The sharing economy has grown significantly in recent years, facilitating innovation, job growth and more choice for consumers. During its consultations, the Taskforce heard that as the sharing economy grows there is an increasing risk that sellers (participants selling goods and services via sharing economy platforms) may not be paying the right amount of tax. This potential underpayment of tax undermines the benefits of the sharing economy to consumers and businesses, and creates an unfair playing field for those doing the right thing.
The ATO has entered into arrangements with some platforms to provide information under its existing information gathering powers. Data collection in the ride sourcing sector has enabled the ATO to undertake preventative activities that help drivers to understand and comply with their obligations. However, a more comprehensive regime is needed to more broadly improve compliance in this area.
To combat this issue, the Taskforce’s report recommended that a compulsory reporting regime be established:
‘Operators of designated sharing (‘gig’) economy websites should be required to report payments made to their users to the Australian Taxation Office (ATO), Department of Social Services (DSS) and other government agencies as appropriate. The Government should also continue to raise users’ awareness about the potential tax obligations from participation in sharing economy activities.’
As part of the 2018-19 Federal Budget the Government responded to the Taskforce’s report, agreeing that there should be greater transparency of payments made through sharing economy websites and announcing that it would consult on how this recommendation could be implemented. In agreeing with this recommendation, the Government noted that innovation in business models should be supported by Government and the community, and regulatory changes should aim to minimise the regulatory burden, and support a level playing field with existing, compliant businesses.
This consultation paper is seeking input on the design of a new reporting regime for sharing economy activities.
The Taskforce’s report noted that there is a risk that sharing economy sellers may not be paying the right amount of tax either due to a lack of awareness of associated tax obligations, or because they are deliberately under reporting their activities in the sharing economy. For those sellers with a lack of awareness as to their tax obligations, this is often because they may have been traditional employees in the past subject to the PAYG (Pay-as-you-go) withholding system. Hence, they may not be familiar with the tax obligations that can apply if they begin earning income from the sharing economy where they may not be considered to be an employee. While the Taskforce recognised that education initiatives play an important role in helping taxpayers meet their tax obligations, it should be supported by a reporting mechanism. A sharing economy reporting regime.
Effective tax systems are generally underpinned by a reporting regime which captures, efficiently and seamlessly, all taxable economic activities. Reporting should not stifle economic activity and entrepreneurship. Rather, it has the potential to make it easier for those receiving income from third parties to meet their tax obligations.
The ATO has already begun to improve reporting in the sharing economy, working with ride sharing and accommodation platforms and developing education and awareness campaigns. To date in the ride sourcing sector, this has improved GST registration rates from 54 per cent to 77 per cent. However as this reporting is not in a standardised format, and does not capture all online platforms in the sharing economy, a universal regime for reporting transactions is still necessary. Unlike many black economy activities which rely on mechanisms to avoid being traceable, sharing economy platforms are based on electronic systems, hence many businesses in this industry could benefit from improved reporting processes, with a minimal regulatory impact.
This consultation report raises 24 related questions, for public comment.