Aussie businesses could be hit with hefty tax bill from ATO for allowing employees to use Uber

Martin Ollman/ Getty ImagesImage: Getty
  • The Australian Taxation Office has determined that ride sharing cars are not taxis, and are therefore subject to a fringe benefits tax.
  • A fringe benefit tax is paid by employers for the benefits they provide to employees.
  • However, certain items are exempt from this tax including taxi services.

Australian employers who let their staff use ride sharing services such as Uber, instead of a taxi, could be hit with a hefty tax bill.

It comes after the Australian Taxation Office (ATO) announced that cars used for ride sharing services such as Uber are not taxis and are therefore subject to a fringe benefits tax (FBT).

A fringe benefit is when an employer provides an employee with a benefit such as paying for a gym membership, giving them tickets to free concerts or letting them use the work car for private reasons.

A FBT is paid by employers on the benefits they provide, according to the ATO. It is separate to income tax and is calculated on the taxable value of the fringe benefit.

However, there are certain items that are exempt from a FBT, such as taxi travel by an employee. “Any benefit arising from taxi travel by an employee is an exempt benefit if the travel is a single trip beginning or ending at the employee’s place of work,” according to the ATO.

The taxi travel exemption was created in 1995 and meant certain types of taxi travel would not be taxed, according to the ATO. The exemption is limited to a vehicle licensed as a taxi so it doesn’t apply to ride sharing services, as they are not registered as taxis.

This means that an employer actually needs to pay tax on Uber rides that employees have taken from work or to work. So all the innovative employers that have set up Uber for Business could actually be taxed for their progressive transport policies.

Uber said in a statement it was disappointed in the ATO’s decision and they continue to work with them.

“While it is disappointing that the ATO has decided not to proceed with a practical guidance note in this case, we are working closely with the ATO to address this inconsistency. Delivering this would ease the burden for Australian taxpayers and level the playing field between taxi and all rideshare,” a spokesperson for the company told Business Insider Australia in an email.

“Importantly, this does not prejudice all Uber, or indeed all rideshare, travel and represents the ATO confirming the status quo.

“We note that in a number of scenarios rideshare travel should not be subject to FBT on the basis of the ‘otherwise deductible’ rule i.e. travel from Employer’s offices to clients or suppliers.”

In February 2017, Uber lost its battle with the ATO over its classification of a taxi, according to SBS. The ridesharing company challenged the ATO ruling that Uber drivers were legally classified as taxi travel providers and therefore, had to be registered for the goods and services tax (GST).

The Federal Court determined that UberX is a taxi service under the law, LifeHacker reported. This meant Uber drivers would have to register for and pay the GST like taxi drivers.

The court defined a taxi as a “vehicle available for hire by the public and which transports a passenger at his or her direction for the payment of a fare that will often, but not always, be calculated by reference to a taximeter”, according to the ABC.

In September 2017, the ATO released a discussion paper for public consultation over the definition of a ‘taxi’ for the purposes of fringe benefits taxes and taxi travel exemptions.

Two years later, the ATO has confirmed ride sharing cars are not taxis, meaning they could be subject to the fringe benefit tax.

“The FBT taxi travel exemption only applies to travel undertaken in vehicles licensed to operate as a taxi by the relevant state or territory,” the ATO said.

“If [employers] provide employees with travel in a ride-sourcing vehicle or other vehicles for hire that are not taxis, the expense may be subject to FBT unless another exemption or concession applies.”

And that’s where the hefty tax fees could come in for businesses that allow employees to use ride sharing services instead of taxis. It means companies have to treat ride sharing services like Uber the same as taxi travel for FBT purposes.

One main concern is that this change may mean businesses need to find alternatives to Uber, despite the fact Uber use is growing in Australia at a rapid rate and taxi use is declining, according to recent research by Roy Morgan.

“Businesses may need to consider whether denying the reimbursement of Uber fares and only covering taxi travel is preferable in the light of this statement,” Murray Howlett, director of taxation services at Pilot Partners told the ABC.

“Any businesses who have not paid FBT on Uber fares in recent years will need to review their positions in the light of this ATO statement.”

Tracey Dunn, senior manager at tax and consulting services company, RSM, told Accountants Daily, “Employers who reimburse employees for Uber (or similar) are advised to review their policies and procedures to ensure the convenience of an Uber doesn’t leave them out of pocket with an unexpected FBT liability.

Business Insider Australia has reached out to industry experts for comment .

UPDATE: Monday, July 8, 5.03pm AEST: The original story has been updated with Uber’s comment.

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