INCOME TAX AND GST REQUIREMENTS
Self-employed taxi drivers drivers must be registered for GST irrespective of turnover. They must also pay GST irrespective of turnover. This provision also applies to limousine operators who charge fares. The $75,000 limit for registration does not apply in these cases. The invoice/receipt issued by a taxi driver must always show a) the relevant ABN and b) the fare charged and c) the GST included in the fare.
Typically, the income of the taxi business is shared between the taxi owner ("the owner") and the taxi driver ("the driver") as follows. From the gross daily takings are subtracted the fuel costs paid by the driver for the day. The net amount remaining is then split between the owner (50%) and the driver (50%). In effect, each gets half of the gross takings and pays half of the fuel costs.
Records must be kept of a) gross takings and b) expenses such as fuel. It is not sufficient to keep a record merely of the net amounts paid to the owner and driver.
The Tax Office uses a benchmark cents-per-kilometre figure when investigating whether a taxi driver or owner has included all of his income in his Tax Return. The Tax Office reckons that a taxi should receive $1.18 (2009) in gross fares for every kilometre travelled. This is total travel for the shift and not just travel with a passenger.
For example, the odometer in the taxi shows that Felicia travelled a total of 350 kilometres during her shift. The Tax Office (and perhaps also the taxi-owner) will assume that Felicia took gross fares of $413 during her shift.
In running the activity, there are four typical agreements that can be entered into between the owner and the driver. In each case, it will be a matter of deciding which of the four agreements has been entered into. To help you decide whether the driver is a) an employee or b) a an independent contractor in any given circumstances, the Tax Office has a calculator on its website which will help you in deciding. Each of the four agreements will have different consequences for a) income-tax liability and procedure and b) GST liability and procedure. Also, the liability for a) workers comp. insurance, b) compulsory super contributions, c) leave/sick pay, d) penalty rates, e) Award conditions and f) liablity for traffic accidents etc. will vary according to the agreement.
The four typical agreements are: 1) employer/employee relationship, 2) independent contractor (sub-contractor) relationship, 3) owner/renter of taxi relationship and 4) partner relationship.
I shall now deal with each agreement in turn.
EMPLOYER/EMPLOYEE RELATIONSHIP. Also known as the master-and-servant relationship. The owner employs the driver to drive the taxi. The ABN of the taxi owner is shown on the fare invoice.
The owner lodges quarterly BAS Returns. He pays GST on the gross takings and claims GST credits for all expenses. There will of course be no GST credit for the driver's wages.
In order to claim GST credits on all expenses, it is desirable therefore that all of the expenses be paid by the owner and not by the driver. The driver does not register for an ABN, does not register for GST, does not render invoices to the owner and does not pay GST.
The owner pays income-tax on his net profit from the business. He claims the wages of the driver as a deduction.
The driver has tax deducted under the PAYE system and receives a Group Certificate (Income Statement) at the end of the financial year.
INDEPENDENT CONTRACTOR RELATIONSHIP. The owner contracts with the driver as an independent contract driver (sometimes called a sub-contractor) to supply driving services to the taxi owner. The ABN of the taxi owner is shown on the fare invoice given to the passenger. The ABN of the driver is shown on the invoice supplied by the driver to the owner. As is the usual custom, the contract-driver will be remunerated by a percentage of the takings (less fuel). Such arrangements are common in other industries. For example, with fishing trawlers, the wage of each crew member is fixed as a percentage of the catch. In franchise arrangements, the franchisee usually pays a proportion of his sales as a franchise fee.
The owner pays GST on the gross takings and claims all credits for expenses. Expenses will include the contract driver's remuneration. The owner will not be able to claim a GST credit for driver's remuneration unless he has received a GST invoice from the driver.
The driver a) will have an ABN, b) will be registered for GST, c) will render a GST invoice to the owner for his services, d) will lodge his own BAS Statement quarterly and pay GST. If the driver does not supply an invoice or if the invoice does not show an ABN, then the taxi-owner must withhold tax at 46.5% from the payment and include the tax withheld in his next BAS payment to the ATO. Of course, in addition, the taxi-owner will not be entitled to any GST credit in such cases. If an invoice is received and it shows an ABN but shows no GST credit, then the taxi-owner will not be entitled to receive a GST credit in such cases.
The taxi owner and the tax driver can enter into what is known as a PAYG Withholding, Voluntary Agreement. In this case, the taxi-owner and the taxi-driver both agree that the taxi-owner will deduct appropriate tax instalments from the driver's periodic remuneration. He will remit this to the ATO. At the end of the year , he will give an Income Statement to the driver showing Gross Amounts earned and Tax Deducted. It will be similar to a Group Certificate. Entering into a Voluntary Agreement has GST consequences but the Tax Office advises these do not apply to taxi contractors. The GST consequences that do not apply to taxi-drivers are: the driver will not charge GST on his invoices to the owner and the owner will not get a GST credit for payments to the driver.
The owner pays income-tax on his net profit from the business. He can claim the following as deductions viz. remuneration of the driver, lease of taxi plates, base fee, other fees payable to group taxi organisation, telephone, bank charges, stationery, vehicle expenses e.g. fuel, repairs, registration, insurance, depreciation etc.
The driver will pay income-tax on his remuneration as a driver. He can claim any additional expenses that he has to pay personally e.g. car washing, uniform, licenses, maps, sun-glasses etc.
OWNER/RENTER OF TAXI RELATIONSHIP. The owner and driver enter into an agreement for the driver to rent the taxi from the owner. The ABN of the taxi driver is shown on the fare invoice supplied to the passenger. The ABN of the owner is shown on the rental invoice supplied by the owner to the driver/renter. The rent of the taxi will be calculated daily in the usual way i.e. half gross takings less half petrol costs. The driver solely carries on the business. The owner is purely a taxi "landlord". Arrangements such as this are common in shopping centres. The shop owner's rent, payable to the shopping centre, is fixed as a percentage of his takings (sales).
The owner will a) render a GST invoice to driver for the rent of the taxi, b) will pay GST on his gross rental income.
The driver will a) have an ABN, b) be registered for GST, c) pay GST on the gross takings less GST credits for expenses. Expenses will include the rent of the taxi. The driver will not be entitled to a GST credit for the taxi rental paid unless he has received a GST invoice from the owner.
The owner will pay income-tax on his net profit from renting out his vehicle.
The driver will pay income-tax on the gross takings less his expenses. His expenses will include the cost of renting the taxi from the owner.
PARTNERSHIPS RELATIONSHIP The owner and driver enter into an agreement to carry on the business in partnership between them and to split profits and losses. Takings and fuel will usually be split on on a 50/50 basis. The remaining expenses will usually be paid by each partner individually. However in order to claim GST credits on all expenses, it is desirable therefore that all of the expenses be claimed in the partnership Tax Return. A calculation will be necessary each year to determine the allocation of the net profit to each partner. The ABN of the partnership is shown on the fare invoice.
The partnership will obtain an ABN, register for GST, lodge BAS Returns quarterly and pay GST on the gross takings less GST credits on expenses. Expenses will not, in this case, include driver's remuneration . Neither the owner nor the driver will have to lodge separate BAS Returns.
A partnership Return will be lodged by the partnership. This will show gross partnership takings and partnership expenses. Expenses will not include driver's wages. Each partner i.e. the owner and the driver, will each pay his own share of the partnership income-tax. Each partner will show in his personal Income-tax Return his share of the income from the partnership.