There is a significant amount of tax dollars that have gone missing through the Airbnb gig economy, as hosts are failing to report side incomes in their tax returns. Here are some dangers associated with not correctly reporting income from short-term rentals, and how the ATO is cracking down on it moving forward.
The Black Economy Taskforce has identified a significant level of noncompliance in the gig economy, as people don’t necessarily assume that the goods they sell or the services they provide have tax consequences, IPA’s general manager of technical policy, Tony Greco, announced on the Smart Property Investment Show.
“I think a lot of people may choose to ignore the obvious. And that is, if they rent a room or a property out, that is assessable income according to our tax system and, therefore, there’s an obligation to report that,” Mr Greco said.
“We know from all the work that we did, as part of the Black Economy Taskforce, there is very low compliance.
“People are not reporting… for whatever reason, whether it’s misconception or ignorance, they’re not reporting.”
The gig economy, or sharing economies, is any platform that facilitates a service or a good being sold — including eBay, Gumtree, Airtasker, Uber or Airbnb.
According to Mr Greco: “A lot of that activity does not appear in the tech system. So, it is a big part of the economy now, so big that there are a lot of tax dollars being forgone from people.”
Airbnb hosts could face serious consequences for failing to report rental income as the ATO strives to recover an annual tax shortfall of nearly $1.4 billion.
Reportedly, many property investors using the gig economy are generating side incomes without reporting them in their tax return, as sharing platforms do not issue notice of assessments to hosts earning under $20,000 per annum.
“So, what is under consultation as we speak... is that the government is trying to capture that activity in a reporting regime, and for that to be passed to the tax office,” Mr Greco said.
“They’re competing against other businesses who are paying taxes. And therefore, there’s a public interest angle here in the sense that you shouldn’t be competing against someone who operates under different rules.”
Properties on short-term rental platforms are advertised for as many searchers to find as possible. This can make it fairly easy for the ATO to find out which priorities are being rented and demand rental income statements from property owners with listings.
“There’s penalties if you do get caught out or you ignore the warnings... and there’s also a fairly hefty interest bill that goes with it,” Mr Greco said.
“So, it’s not in anyone’s interest to ignore that activity.”
Further, Kath Anderson, assistant commissioner of the ATO, said in a statement: “Penalties can range from 25 per cent up to 75 per cent of the shortfall, in addition to paying the money owed.”
According to Mr Greco, if accountants are made aware of this information, they can go about providing the best advice possible to help best investor positions and tax situations.
“I think full transparency as you stated [is key]. It won’t be too long before that information is known to the tax office, so you can’t ignore it once those reporting regimes are fully operational,” he said
One Airbnb host, who chose to remain anonymous, has been subletting her property through Airbnb for two years and has not reported her side income once to the ATO.
“I don’t make that much money from it and I can’t imagine they would come after me,” the Airbnb host said to Smart Property Investment.
This may no longer be the case as the ATO increases prosecution and surveillance efforts, making it easier to identify tax evasion.
According to Ms Anderson, she expects to process a record amount of information this year.
“Our compliance models have already auto-adjusted more than 112,000 tax returns in July and August [last year], recouping $53 million,” she said.
For investors who are deriving income from the gig economy without declaring it, the tax office either already knows, or their capability to unearth such hidden income is becoming more sophisticated.
“It’s not going to be too long before they’re going to be asked to provide that type of information,” Mr Greco said.
“So, you could have a property that you allow the platform Airbnb to rent on your behalf, that represents income.”
Any investors who are providers of property, that information might be reported involuntarily, whether that information is disclosed in returns or not.
It will form part of “what we call the prefilled”, Mr Greco said.