By Nassim Khadem
Silicon Valley technology giant Uber says it will mount a legal challenge against the Australian Taxation Office after the agency said it would force thousands of Uber drivers to register for and pay GST.
Thousands of Uber drivers across the nation will have to register for GST by August 1, which could mean the cost of rides taken by consumers on the popular ride-sharing service rises by 10 per cent.
The move has angered Uber, which has today written to its 9000 drivers advising them not to register for GST until the company - with a market capitalisation approaching $US50 billion - gives them further advice. This advice would be given before the ATO August 1 cut-off date, after which those who are not registered risk hefty fines and criminal prosecution.
In an interview with Fairfax Media, Uber's general manager in Australia David Rohrsheim said the company had written to their 9000 drivers telling them that it was going to challenge the ATO decision.
"We disagree with the ATO's interpretation": David Rohrsheim, Uber's general manager in Australia.Credit: Louise Kennerley
"We disagree with the ATO's interpretation ... and we will be challenging this. So stay tuned," he said.
The company was currently taking legal advice on how a challenge could be mounted. "What we would prefer though is that the [Abbott] government recognise that it's a policy decision and instead of referring it to the ATO, the government should take on the policy challenge as part of its tax review."
Changing the law to suit modern-day services such as Uber was better than rather than let the ATO interpret the GST Act from 1999, Mr Rohrsheim said.
Treasurer Joe Hockey has previously said the sharing economy is up for discussion in the tax white paper.
Thousands of Uber drivers across the nation will have to register for GST by August 1.
But a Tax Office spokesman said the agency had "carefully considered" the matter and was confident its position was consistent with current tax law.
"While taxpayers are within their rights to challenge the Tax Commissioner [Chris Jordan's] position, the ATO is first and foremost seeking to work with effected parties to assist in their compliance with the existing law," the spokesman said. "If agreement is not reached with an interested party, then the ATO as model litigant would engage with any challenge through appropriate legal means."
CPA Australia's head of policy Paul Drum said the Tax Commissioner had likely taken the right interpretation of the law. "If it looks like, smells like and quacks like a taxi service, then it probably is," he said.
The move is likely to put a dent in Uber's planned expansion across Australia. Mr Rohrsheim said while there had been enormous demand from people wanting to be Uber drivers, the ATO decision may now deter them from going ahead because there's too much "red tape" involved. "The ATO decision will slow down growth of the sharing economy," he said.
Uber has been fighting with state and territory regulators ever since it launched here two years ago, flouting existing laws and allowing its drivers to get slapped with hefty fines because they have not abided by safety checks and insurance laws that the rest of the taxi industry abides by.
Uber says it's just a technology company providing a ride-sharing service, and thereby doesn't need to register for GST and abide by the same laws as taxi services.
But the ATO decision has in no uncertain terms stated that it is a taxi service, and thereby not exempt from paying GST. Other sharing economy services such as Airbnb, however, are exempt. This is because they fall under the $75,000 threshold at which the need to have an ABN and register for GST kicks in.
The tax laws have always stated that taxi services still need to have an ABN and register for the GST, regardless of the threshold. This is to avoid people operating illegally as part of the cash economy.
Mr Rohrsheim questioned why the ATO had reached its decision after consulting with taxi industry. "I am not sure why they are consulting with other industries on [what is] the correct interpretation of this law. I find it strange."
If the 10 per cent GST charge is imposed, the cost of uberX will rise. Mr Rohrsheim would not comment on the price rise, reiterating Uber would be fighting the decision. "Uber x rides in Sydney can be 50 per cent cheaper than a taxi," he said.
But the taxi industry and rival companies have welcomed the ATO decision. GoCatch chief executive and co-founder, Ned Moorfield, was pleased Uber was being made to obey by the same laws as everyone else. He had complained to the ATO that Uber may be avoiding its tax obligations.
"GoCatch strongly welcomes moves by the federal government to even the playing field between local and overseas market participants when it comes to the GST treatment of online services," Mr Moorfield said.
Australian Taxi Industry Association (ATIA) chief Blair Davies said Uber was "off with the fairies" if it thinks its drivers do not need to pay GST. He hoped the ATO won't stop with the "little fish uberX drivers" but will go after Uber itself. "The ATO needs to urgently close each and every one of the loopholes that allow local operations to use overseas holding companies to give them free rides paid for by Australian taxpayers," Mr Davies said.
Shadow assistant treasurer Andrew Leigh - who has been quite vocal about the need to regulate and tax new sharing economy services like Uber and Airbnb - said the Abbott Government was "abdicating its responsibility" by not leading a serious conversation. "Instead, it is leaving it up to line agencies to drive policy making," Mr Leigh said.
Airbnb's Australian general manager Sam McDonagh welcomed the ATO announcement. The ATO has said that people offering services through Airbnb, which are not running a bed and breakfast, but merely allowing individuals to rent out their property for small durations, would not have to register for GST.
But they would have to declare any rental income on their tax return and pay capital gains tax upon sale. "It provides clarity for our hosts across the country," Mr McDonagh said, adding more than 35,000 properties in Australia have been rented out through the Airbnb site.
H&R Block's Mark Chapman said the ATO, along with other regulators, had been trying to play "catch up" on sharing economy services. "Even going as far back as the emergence of E-bay as a retail giant, the ATO has struggled to apply the tax law to businesses which sit outside our traditional vision of what a business looks like," he said.