A bit of preparation and a few smart tips helped Tom, get off to a great start, with no worries about the ATO.
Driving for Uber is becoming a popular way to earn extra income. But don’t ignore Uber driver tax or the ATO! Simple planning will make tax time painless for people who drive for a living.Tom is a professional person working a professional job. He’s university-educated and works all week in a demanding job where he’s building a career. Tom is also an Uber driver (Uber calls them “Uber Partners”), and he’s doing well at it.
Uber requires partners to maintain a customer rating of 4.67 out of five. That keeps me thinking about customers and giving good service.”
Tom’s positive approach to customer satisfaction is also fueled by his financial success driving for Uber.
Driving on Friday nights and weekends, Tom earns a very healthy extra income. “Uber made it possible for me to save a big nest-egg in a just a few months, leading up to my wedding and honeymoon.”
Newspapers and the Uber community have both been buzzing with news about the ATO’s “war on Uber”. The ATO announced that all Uber drivers are required to register for GST, even if their income is under the $75,000 GST income threshold applied to other types of workers.
Playing it safe is the way to go – it’s not so hard, and I have no worries about my Uber Driver tax issues,” says Tom.
How did Tom get set up so well that he has no ATO concerns?
He followed nine basic steps that set him up for Uber success:
- Open a new bank account that’s used ONLY for your Uber income and expenses:
“…this makes it way easier for me to keep track of everything for my tax return, ATO instalments and GST.”
- Get an ABN.
- Register for GST.
If you haven’t applied for an ABN yet, you can do that at the same time as registering for GST. Or if you already have your ABN, you can register for GST directly with the ATO.
- Keep good records, all the time. Use a proper small business system. Tom said, “I’m going to start using Quickbooks Online to manage my finances. Connecting that to my Uber bank account, plus saving all my receipts and the great reports that Uber provides – it is pretty easy to get Uber driver tax 100 per cent right.”
- Keep a logbook. This is how you prove a work-related percentage of your car use, letting you claim important ATO tax deductions to lower your taxes. It takes a bit of patience and you have to record your travels every time you get out of your car (personal use included!). But, you only have to do that for three months, then you’re set for five years. It’s well worth it at tax time each year!
- Keep track of expenses. Tom had a great example that shows why keeping receipts plus using a logbook is important: “My logbook shows that over eighty per cent of my mileage is from Uber driving. Last month, I had to get a piston replaced in the engine of my car and it cost over $2,000. Because of my logbook, I know I can claim eighty per cent of that expense, so I’ll get part of that money back when I use it as a tax deduction for car expenses.”
- Save for your tax bill. This is the hard part for some people to swallow, but it is absolutely critical.
“Because I also have a day job, my extra earnings with Uber will make my tax bill much, much higher.”
Tom is right. In the first year driving for Uber, a driver earning $50,000 for the year may need to save around $9,000 for tax time. But if the same person also works a day job earning, say, $70,000, then he or she will need to save over $19,000 to pay the ATO at tax time.
“I’m saving thirty-four per cent of my net Uber earnings to pay the ATO, just to be sure I don’t get caught with an ATO debt. But still, I’m making a good extra income from what’s left.”
- Use a tax agent and get your Uber driver taxes right the first time! Unless you’re an accountant, there’s no point in trying to do your own taxes as a sole trader. “My tax agent will help me with any ATO headaches. And I just learned, the fee is tax deductible next year anyway.”
A tax agent, consulted early-on, can help you find eligible deductions plus help you plan your “weekly tax savings plan” to avoid a shortfall at tax time.
Before we spoke to Tom, we’d heard rumours that Uber drivers could not make a living and that it was a lot of hype. Tom really shifted our perspective; he is a real example of an Uber driver and he makes Uber look good, both as an income option and as a transportation option.
It seems that driving as an Uber Partner may be quite an easy, respectable and practical way to make some extra income in Australia. Just be careful you could follow the steps above so your Uber-related tax obligations are covered and you don’t get caught-out with unexpected tax bills or simply subscribe to InterSync and let us look after most of it (at least the hard parts)….