The gig economy is growing by leaps and bounds in Australia, powered by new technologies and new innovative work platforms and applications. Many Australians, including those in regular employment are embracing these gigs in order to make extra money. Some even live off them. Even though few can match the average wage in Australia, it is possible to make a good income on these platforms.
The gig economy platforms have always been dubbed a “race to the bottom” because they thrive on low wages. If you transition from the traditional employment into the freelancing marketplace, your pocket hips may end up taking a hit and that may impact other key financial obligations such as your contributions to superannuation.
This is made even more complex by the fact that self-employed Australians are generally exempted from compulsory superannuation contributions. The number of growing Aussie freelancers and gig economy workers are also not making voluntary super contributions and the gap in contributions will grow increasingly bigger as more employees abandon the traditional brick-and-mortar office for a flexible career in the gig economy that allows you to control your work schedule and earnings. At present, some 100,000 Aussies work in the gig economy, representing 0.8% of the total workforce. At the same time, some 75% of self-employed Australians are not making superannuation contributions. Over the next decade, you can expect this number to grow because many of the web-based services are going to grow beyond Uber, Airtasker, AirBnB, TaskRabbit or Upwork into more robust and versatile web tools that will hive off a greater option of the traditional workplace and encompass even more industries.
The Gig Economy and Taxes
Apart from the challenge of low earnings and lack of superannuation contributions, the gig economy also faces challenges with taxes. A lot of workers in the sharing economy aren’t even aware that they are supposed to declare the incomes that they earn in the gig economy.
Most people who work in this economy are either ignoring or fail to understand their tax and legal obligations. Many of these are independent contractors who are not bound by the requirement for mandatory superannuation contributions and don’t feel the need to declare their earnings. The informal nature of the economy can pose risks not just to the participants but also to the accountants filing the returns on behalf of their clients.
Filing Taxes as a Freelancer or an Independent Contractor
The law is that all workers-whether an employee or a gig worker- must pay income taxes through the Pay-As-You-Go (PAYG) tax system. For employees, the process is relatively simple. The employer will withhold the PAYG tax and remit it to the Australian Taxation Office (ATO) at regular intervals.
It is common for people to treat the income that they receive through the gig economy as extra pocket change. But that is often a serious misjudgment. As long as you are being paid money for your work, that income is taxable.
If you are providing services in the sharing economy such as AirBnB, Deliveroo and Uber, then your income will be treated as business transactions and be liable to the goods and services tax (GST) and various other taxes that may be applicable to you. However, if you incur expenses while working in the sharing economy or gig economy, you can also claim tax deductions on the same. Make sure you have documentation to support your deduction claims.
Paying Taxes on Your Earnings in the Gig Economy
If you are working on platform such as AirTasker, TaskRabbit or Upwork and making some money, this income is treated as an assessable income. You will need to include this income on your tax returns. However, you should also remember to keep good records on the expenses incurred in generating your income so you can use these to claim tax deductions. When declaring your income, make sure you declare the gross amount that is paid by the customer and not the net amount (after the deduction of service fees).
When filing the tax returns, make sure that you declare all the relevant income earned during the year and submit the returns before 31st October. Failure to do so might expose you to an ATO audit as well as interest and penalties that could amount to quite a significant sum. You can also use an accounting firm Melbourne or tax agent for your tax lodgment to enjoy an extended tax lodgment period.
