Understanding Basic Tax Obligations as an Uber Driver
Whether you’re between jobs or just looking to make a little extra cash on the side, becoming an Uber driver can be a great way to make money. It offers flexible working hours which allows you to keep a work-life balance. It also offers a decent rate of pay once you figure out the best times & places to work.
I was excited when I started with all this extra cash coming in but I knew I had to keep taxes in mind. Dealing with taxes may be intimidating for people who have never run their own business before,but don’t worry, it’s more simple than you may think.
So You’ve Decided to Drive
First and foremost, you need to decide whether you’ll register as a sole trader or a company. It’s important to speak to an accountant before making this decision to decide which will work best for you. I personally chose to register as a sole trader. This gave me the advantage of using the car for both personal & business use without having to pay the Fringe Benefit Tax.
Secondly, you will need to decide if you are going to use a personal car or buy a car specifically for use when driving. My personal recommendation is that, if you are doing Uber part-time, just use a personal car. However, if you are driving Uber full-time, it may be advantageous to buy a car specifically for this purpose, but this is on a case-by-case basis and something that should be discussed directly with your accountant.
Now that you’ve chosen the structure of running your business and what car you’ll use, you need to consider GST. As a driver of a hire car, you are required by the Australian Taxation Office (ATO) to register for and pay GST on all the rides you give. Essentially this means that 1/11th of all of the income needs to be paid as GST to the ATO each quarter. But there is an upside to this: You can also claim back the GST on all expenses related to driving the car as well.
This could include the GST on mints and water you provide for your riders. Regardless whether you use the car solely for business or for personal use as well, you can claim back a portion of the GST on your fuel, oil, repairs or servicing, insurance & registration. I know this feels like a lot to keep track of, but it’s worth it. Quite often you will find you can reduce your GST payments each quarter to near zero.
Hiring a good bookkeeper can help to handle this as well as using some easy accounting software such as Xero or MYOB. My bookkeeper helped in setting up a variety of automated rules to help classify the income & expenses related to my driving with automated bank feeds in Xero. The most important thing to remember is to keep every single receipt related to the car you’re driving & all purchases related to this. Put them in a folder and retain them in case you ever get audited.
Preparing for Tax Time
Another important consideration when driving for Uber is to understand that they don’t tax your income. This means that, at the end of the financial year, you’re going to have to input all of the income you’ve made from driving and pay the appropriate tax on it! There is good news though, remember all of the expenses you can use to offset your GST? You can claim the same expenses back on your taxes based on the non-GST portion of the expense.
This is where a car logbook becomes a valuable resource. Regardless whether you are driving part-time or full-time, you need to be sure you keep track of every time you get in the car to drive for Uber. This can be done in a spreadsheet noting the date, time you started & stopped driving, as well as the odometer reading at the start & end of the day. Alternatively, you could track this using an app (which is what I use!).
The easiest method, the method I used, to claim back the use of your car is to use the cents per kilometre method. This allows you to claim back 66c per kilometre driven, to a maximum of 5,000 kilometres per year. If you drive more than 5,000 kilometres, you will have to use the logbook method and claim back the full kilometers driven on the car for business use. Utilising either can provide you with a significant offset on your taxable income (5,000km could net you a $3,300 tax offset, for example, using the cents per km method) earned while driving for Uber. Your end of year payment to the ATO could be significantly less or possibly even nil.
Reducing the Costs Associated With Running Your Car
There are a few additional hacks you can use to save money while driving for Uber. Firstly, I highly suggest you sign up for a rewards card such as Woolworths Rewards. I use the card for my regular weekly shopping and constantly earn 4c fuel discounts that I can use at appropriate stations. 4c may not sound like a much, but it adds up over time and can be effective way to scale the cost of using your car for business.
Secondly, be sure that you’re driving a fuel-efficient car. I had the choice of using our 8.4L/100km Mazda CX-9 or our 6.7L/100KM Toyota Corolla - can you guess which one I chose? By choosing a more fuel-efficient car, you will spend more time on the road making money and less time at the station. This also equates to less receipts and expenses that you have to keep track of, come tax time.
Lastly, make sure you reduce car repair costs on the car you are using. This includes ensuring regular servicing at certain odometer readings & utilising trusted repairers when getting these services completed. There are also many things you can do yourself to reduce car-elated issues, such as:
Check exterior lights are working
Check that glass surfaces are free from chips and cracks
Check the windscreen wipers and washers regularly for corrosion
Check the wiper rubbers
Ensure your horn works
Test the handbrake on a steep hill
Check all of your seat belts and make sure they lock
Maintain appropriate tyre pressure and condition
Make Uber Work for You
Deciding to drive for Uber can go a long way in generating extra cash on the side or to sustain a full-time income, but it’s very important that you think about all of the tax implications. I highly suggest you consult your accountant for tax advice and hire an expert bookkeeper to assist you in tracking your day-to-day expenses to ensure you pay the minimum GST and tax related to your driving. You can always call the ATO itself and they will provide advice and resources to understand your tax requirements as a driver. Have fun and enjoy your Uber experiences - they will give you more than ample conversation starters at the pub.