Market disrupters challenge the tax system: just think Uber

David Sofra, Partner, Tax

In many areas of public policy there is pressure on legislators and regulators to take action when the speed of change, often technological, has left laws far behind.

One such area is the tax treatment of employer-funded rides for workers using Uber or other app-based ride-sharing providers.

The Fringe Benefit Tax legislation was written largely 30 years ago, when mobile phones were a rarity (and the size of a brick) let alone being personal computers incorporating new technologies.

So the Australian Tax Office’s definition of ‘taxi travel’ was precisely that. A conventional licensed taxi. And in cases where the journey begins or ends at an employee’s place of work, the ATO would allow an exemption to apply, and employers could claim back the FBT on the cost of the ride.

But after Uber set up in Australia in 2012 things soon changed, and its share of the market rose quickly. Ride-sourcing services were however, only given official legislative permission to operate in the states and territories from 2015, with ACT being first cab off the rank (no pun intended)

It was at this point where employers’ involvement took off. Most were unwilling to reimburse expenditure of ride-sourcing services until they became statutorily permitted in the relevant state.

But many employees liked the flexibility of these services and employers liked both the GPS tracking of journeys (thus proving the ride was from or to the office and not for personal use) and that printed receipts were not needed for expenses administration.

But they didn’t like that with Uber not being classified as a taxi, they could not claim back FBT in the same way. Some had to quietly absorb the extra tax themselves while others have changed their company policy to taxis only.

For the past 2 years, pressure has grown on the ATO to address the anomaly of otherwise identical trips being treated differently for tax purposes. And earlier this year it relented and put out a discussion paper to potentially align the tax consequences.

KPMG has put in a submission in which we welcome the mooted change in policy. But we would like to see those employers, who have paid the extra tax, being allowed to challenge those FBT assessments for the past two years and reclaim it, assuming the law is changed. Retrospective relief would be just in these circumstances, even though the amounts might be quite significant given the number of large employers involved.

The ATO deserves credit for addressing the problem, although some might say it could have moved a little quicker.

But businesses are now also asking whether the ATO will continue to be reactive to the tax implications posed by other new and disruptive technologies.

With more and more ‘disrupters’ planning to expand their operations into Australia over the coming months and years, it remains to be seen whether the unique tax – and other – challenges arising from these entries will also be addressed in a timely manner by our regulators.

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