Commencing in December 2016, the Black Economy Taskforce (BET) was established to halt or reverse growth in the ‘black economy’, to improve visibility over money flows and increase taxation revenue.
Recommendation 6.2 of the BET Final Report recommended a sharing economy reporting regime. The Government agreed stating that there needed to be greater transparency of payments made through sharing economy websites.
Treasury is now consulting on two options for implementation, either via the sharing platforms themselves or via financial institutions.
Point of View
What is the ‘Black Economy’?
The BET was established in December 2016 to ‘develop an innovative, forward-looking, multi-pronged policy response to combat the black economy in Australia’.
In establishing the BET, the Minister acknowledged that there was no universal definition of the black economy, but that it typically refers to:
People who operate entirely outside the tax system or who are known to tax authorities but deliberately misreport their tax (and superannuation) obligations. The black economy can also include those engaged in organised crime, including those who engage in the production and sale of prohibited goods.
The BET viewed cash as an enabler for the black economy. In its interim report, it stated:
Cash is a key part of our payment system, but it offers anonymity to those in the black economy. … A more modern and low-cost electronic payment system has the possibility to limit opportunities for black economy participation and allow a more targeted approach toward those who continue to use cash.
The Government’s Considerations
The interim report (released in May 2017) highlighted that the BET was investigating the payment system, particularly the role of cash, in facilitating the growth of the black economy. The Final Report and the Government Response (release May 2018) contained a range of recommendations, including some that specifically impacted the payments:
An economy-wide cash payment limit of $10,000
Mandating the payment of salary and wages into bank accounts
The future direction of interchange fees
Bringing down the cost of debit card transactions
A better understanding of the use and role of high-value banknotes
An identity solution for the modern economy
A sharing economy reporting regime
Implementing a sharing economy reporting regime
The BET recognised that the sharing economy has grown and continues to grow significantly. This has had a positive effect of facilitating innovation, job growth and improving consumer choice. However, the BET identified that this potentially has a cost, where participants in the ‘gig economy’ may not be paying the right amount of tax. In August 2018, the ATO entered into arrangements with some platforms to undertake data matching under its current information gathering powers. Whilst this has generated a positive increase in declared income, the BET recommended the need for a more comprehensive regime to improve compliance. It stated:
‘Operators of designated sharing (‘gig’) economy websites should be required to report payments made to their users to the Australian Taxation Office (ATO), Department of Social Services (DSS) and other government agencies as appropriate. The Government should also continue to raise users’ awareness about the potential tax obligations from participation in sharing economy activities.’
In order to tackle this issue, the consultation paper is seeking input on the design of a new reporting regime, outlining two possible approaches:
Option 1: Reporting by Sharing Economy Platforms – where operators of sharing platforms are required to collect and report to the ATO.
Option 2: Reporting by Financial Institution (FI) – where FIs such as banks and payment processors are required to provide transaction data to the ATO for data matching and pre-filling purposes.
As the Organisation for Economic Co-operation and Development (OECD) has noted, digitisation and changes in work practices have implications for tax policy and tax administration for governments across the globe. As many sharing economy platforms are global entities operating in numerous jurisdictions, most governments have yet to act.
Given the OECD work continues, a key lesson is that a globally consistent approach to reporting is preferable to a regionalised approach. Any future reporting regime for Australia should continue to support, rather than stifle, innovation and consumer choice and should not create unnecessary barriers to entry.
The paper outlines the five important factors to consider for any new reporting regime for the sharing economy, in that it:
Promotes a positive user experience
Influences behavioural change in reporting taxable income
Adopts a light touch regulatory approach
Ensures a level playing field
Ensures sufficient and reliable information is periodically received by the Government in a standardised format
Considering each of these factors against the two possible options for implementation, it becomes clear that Option 1, reporting by the sharing economy platforms themselves, is the most effective at meeting the BET’s objectives.
The platforms are able to confirm who is using their services, who is active and when and where the last transaction took place. This enables the platform to provide statements of earnings, giving a clear breakdown of income and GST. Placing the onus for income reporting onto FIs would have far-reaching implications for Australian taxation policy and the financial system. FIs are currently not responsible for income reporting for Australians. For example, pay as you go (PAYG) taxation is undertaken through employers, and dividends earned from shares or gains from property or other investments are not reportable by FIs. It is unclear how FIs would be able to separate and identify relevant data. The use of additional consumer datasets (that may involve personally identifiable information) for matching purposes could potentially raise privacy concerns.
One of the factors for consideration is to ensure a level playing field. It appears fairer for compliance costs to be borne principally by the sharing economy industry and its participants. The cost of implementing Option 2 would be borne by FIs and therefore effectively the broader Australian public – whether or not they work in the sharing economy.
There are different interpretations in precisely how to define the boundaries of the sharing economy, are often unclear. Both the BET Final Report and the current consultation paper note that a typical gig economy worker will use multiple platforms. As the sharing economy continues to grow and new business models emerge and exit the market, it is likely that these boundaries will blur further. Therefore, FIs will have no reliable way of tracking which platforms they need to be reporting on and which do not.