As more people swap full-time employment for freelance work, there are plenty of opportunities for accountants and financial advisers to help their clients stay in control of their money.
The gig economy has changed the way many of us think about work, as a growing number of Australians are ditching 9 to 5 jobs in favour of independent task-based contracts. Casual workers now represent a fifth of the total workforce, and the 2016 Census showed that over 30% of Aussies were working part-time – a rise of 14% since 2011.1
And it’s not just Uber and Airbnb that are opening up non-traditional income sources. The sharing economy has spread far and wide, with new platforms emerging that allow workers to provide a variety of industry-specific paid services.
But those who are new to gig work may not understand the tax, super and other financial implications involved. In fact, some may see it as a hobby, rather than treating their freelance employment as a business – which means they could risk failing to meet their tax and regulatory obligations.
Here are five ways accountants and advisers can help their clients navigate this brave new world.
1. Managing tax
Gig workers need to declare their total earnings from all contract work, which may include multiple income sources. Rental earnings from Airbnb are also regarded as assessable income. This can cause a tax headache for many gig workers at tax time, particularly if they do a mix of freelance and permanent or casual work.
It’s important for your clients to understand that the ATO can match tax returns against data from third parties, including the platforms they may use to secure gig work. If they attempt to hide any income, they’re likely to be found out and may have to pay a penalty.
If a freelancer earns over $75,000 through their ABN, they’ll need to register for GST and charge GST for their services. However, a different rule applies to Uber drivers, as the ATO considers them the same as taxi drivers for GST purposes.2 This means they have to be GST-registered, no matter what their income.
2. Claiming deductions
Gig workers may also be eligible for deductions relating to the costs of providing their services. They should first check the ATO website to confirm which work-related expenses are deductible, and they must also keep appropriate records in case they need to prove a claim.
For instance, an Uber driver might be able to claim for expenses like parking, insurance and car registration, whereas a tradie working through Airtasker might be able to claim deductions for their tools, equipment and work clothing. Some of your clients’ operating expenses may also be deductible, including fees or commissions paid to the service platform they use, as well as things like vehicle mileage and mobile phone bills.
Clients who work out of a home office, or those who rent out accommodation through sites like Airbnb, may be able to claim deductions for associated expenses including utility bills, cleaning and maintenance costs and home loan interest. But remember, they can only get a deduction for the proportion of the property they use to earn an income – and in the case of Airbnb rentals, the amount of time they rent it for.
The most important thing your clients need to understand is that their tax obligations will largely depend on the specifics of their gig earnings. That’s why it’s vital that they have a tax adviser who understands the ins and outs of their personal situation and can provide the right guidance if that situation changes.
3. Building superannuation
When it comes to super, there’s a significant difference between gig workers and casual employees3. Many gig workers are not entitled to receive compulsory Super Guarantee payments from an employer, so they risk falling behind with their retirement savings.
The Association of Superannuation Funds of Australia (ASFA) estimates that around 19% of Australia’s self-employed workers have no super savings at all, compared with 8% of employees.4 While ASFA is currently developing a proposal to include gig workers in the Super Guarantee scheme, this hasn’t yet come into force.
While it’s important for self-employed workers to consider making regular super contributions, this may be easier said than done for clients whose earnings can change dramatically from one month to the next. That’s where you can help – by developing a super strategy tailored to each client’s unique circumstances so they can them grow their nest egg throughout their working lives.
4. Budgeting and saving
By nature, freelancing is unpredictable; there are likely to be periods when the work is pouring in and other times that are relatively quiet. Because gig workers don’t have the security of a regular pay cheque, it’s essential that they stick to a strict household budget so their finances don’t get overstretched during the dry spells.
By drawing up a list of your client’s average monthly incomings and outgoings, you can help them avoid overspending. A regular savings plan will also ensure they have a financial safety net if they need to take time off for illness or holidays, since they won’t be getting any paid leave.
When many gig workers are starting out, their first few tax bills can also come as a nasty surprise. But with a strong financial plan, your clients can regularly put money aside to cover their tax obligations and avoid a financial shock at EOFY.
5. Education and empowerment
When it comes to money management, knowledge is power. And while many Australians are making the switch to gig work, either by choice or necessity, they might not understand how it may impact their overall financial situation.
For your existing clients, you could put together some easy-to-read fact files based around the major sharing platforms such as Airbnb, Uber and Airtasker. By breaking down the key information around super and tax, you can help guide your clients through their options to make sure they’re fully prepared.
Given the rising popularity of the gig economy, you might also consider tailoring some of your newsletter articles and other communications to cover this topic. You could also tap into a pool of potential new clients by posting online blogs for social media groups aimed at gig workers.
1. McCrindle Research, Understanding Australia’s casual workforce, 2017; Australian Bureau of Statistics, Census of population and housing, 2016.
2. Australian Tax Office, Ride-sourcing and tax, 2018.
3. See ATO Superannuation Guarantee Ruling SGR 2005/1 for an explanation of when an individual is considered to be an employee for superannuation guarantee purposes. Note that determining whether a contractor is an employee for superannuation guarantee purposes is not determined by reference to whether the person is a full-time, part time or casual worker, but whether they work under a contract that is wholly or principally for the labour of the person.
4. ASFA, Superannuation balances of the self-employed, 2018.