Tax and the gig economy: Knowing your tax obligations when it comes to side hustles - Diana Clement

Even cash earned from babysitting or dog walking can be taxed. Photo / 123rf

Misinformation is rife when it comes to (not) paying tax. People earning money from the “gig” or “sharing” economy are often particularly confused. They may earn money via platforms such as Fiverr, Uber, Lyft, Airbnb or directly from language schools or boarders. They may do href="https://www.nzherald.co.nz/topic/marketing/" target="_blank">marketing, accounting, UX design, charge rideshare scooters overnight and many more paid tasks.

There is reasonably widespread ignorance (sometimes wilful) about tax from this income. People often think money earned on overseas platforms doesn’t need to be declared in New Zealand.

I know I’m in the minority, but I see paying taxes as a positive that pays for education, healthcare, roads and all manner of other infrastructure and services that make for a civilised existence. For that reason, I raise an eyebrow when a tradie asks to be paid in cash or I see social media posts where people talk about how they evade their tax obligations.

There is a lot of blind leading the blind going on in those online discussions, with people saying there is no need to declare this or that income. James Fuller, chief executive of HNRY, which provides an accounting and tax automation tool for sole traders, sees the same. Fuller says misconceptions about tax obligations in the gig economy abound, both among workers themselves and in broader discussions within forums, social media and even in traditional accounting circles.

Whether that money is paid into an overseas bank account or directly here in cash, all income is taxable, says Fuller. “Income earned when you are a New Zealand tax resident, regardless of what platform that is from, and whether that’s domiciled in New Zealand or otherwise, has to be declared to Inland Revenue as part of your tax return.” Tax on a side gig is all added up with the main job or sole trader income and taxed, he says.

Earning that money from overseas clients, on overseas platforms and paid into overseas banks doesn’t get someone off the hook if they’re domiciled in New Zealand. Nor in theory does earning cash from babysitting or dog walking, he says.

As of January 1 this year, the big overseas platforms are required to report information to our Inland Revenue Department [IRD] about income earned by New Zealand residents. That means the money people fail to declare from their gig work will show up in the IRD’s systems anyway and some tax evaders will start getting letters to get their tax affairs in order or be fined.

“IRD just finished a $2 billion transformation project,” adds Fuller. “I would say a large amount of that is to mitigate non-compliance, particularly in sectors that have been deliberately non-compliant for a period of time.”

One of the very confusing areas with declaring gig income is renting rooms out via short-term rental platforms, or to students and boarders. Each has its own set of rules. But all are taxable. So too is income from flatmates if you’re the homeowner. Income from homes let on short-term rental platforms must also be declared. In each case, taxpayers can claim costs against the income, but over and above that, they pay tax.

Fuller says that on the other hand, plenty of gig/sharing economy workers are not claiming their full costs against the income they declare to the IRD. “A lot of people aren’t that well-educated about what they might be able to claim as a business expense to offset some of that tax liability.”

For example, HNRY has clients who drive courier vehicles by day, but make extra income out of hours by rounding up, recharging and redeploying rideshare scooters. “One of the things that they don’t often do is track and claim the amount of their home electricity that they’re spending charging these scooters.”

Another tax rule that is changing this year and will affect some taxpayers is that from April 1, 2024, online overseas operators who facilitate these sharing economy services must collect GST on sales when the service is performed, provided or received in New Zealand.

This is proving to be a great source of confusion on discussion forums. It means the company, eg Uber or Airbnb, needs to collect GST on the services they sell from the customer. It doesn’t mean that individual drivers or Airbnb hosts need to be GST registered if they’re earning below $60,000 per annum. Individuals earning over $60,000 from these platforms do need to register, but need to take very good accounting advice.

GST can be a minefield. You may have to pay GST on the sale of your home.