More than 50,000 Uber drivers in Australia will have to pay 10 per cent GST from the first dollar they earn after the ridesharing app lost a 18-month battle with the Australian Tax Office.
In a decision handed down on Friday, the Federal Court rejected Uber's argument that its drivers should not have to pay GST because it is not providing "taxi travel" and ordered Uber pay the Tax Office's legal costs.
The decision confirms Uber drivers will have to pay 10 per cent GST on top of the 25 per cent commission to Uber regardless of how much they earn.
The court case hinged on whether Uber was providing "taxi travel" for the purposes of the GST legislation. Generally businesses with less than $75,000 turnover do not need to collect GST but this rule does not apply to taxis.
If Uber was classified as a provider of "taxi travel" its drivers would also have to pay GST even if they earn less than $75,000 a year.
Justice John Griffith of the Federal Court said the phrase "taxi travel" should be "construed broadly and not technically" and accepted the Tax Office's argument the ordinary meaning of the word "taxi" is a "vehicle available for hire by the public and which transports a passenger at his or her direction for the payment of a fare that will often, but not always, be calculated by reference to a taxi meter".
He said the fact Uber cars did not have taxi meters installed them was irrelevant because it was not essential to the ordinary meaning of the word "taxi".
Uber spokeswoman said the company is disappointed with the decision and will provide its drivers with more information "as soon as we can". The Taxi Office spokeswoman said: "It is important that Uber and other ride-sourcing providers now work co-operatively with us to help assist their drivers to understand and comply with their tax obligations and to claim their entitlements."
Uber argued its drivers are not providing "taxi travel" because taxis can pick up passengers without booking using the rank and hail system but Uber cannot.
But the Tax Office quoted a number of dictionary definitions to argue the term taxi should include ride sharing services.
Although Uber drivers have been required to register for GST since August 2015, Ride Share Drivers' Association of Australia spokesman said some drivers have chosen not to register until the court decision. RSDAA represents over 700 Uber drivers.
He said the decision was "disappointing news for drivers who are already being pinched by Uber's predatory pricing model."
"It seems the courts can't differentiate between a full time enterprise and a part time pocket money job," he said.
But NSW Taxi Council chief executive Roy Wakelin-King said "the notion that somehow Uber is magically different to the taxi industry is a myth" because taxis and ridesharing services such as Uber do the same job.
"Uber drivers who claim there was uncertainty about this, once again, have not been compliant with the law and ATO should hold them to account," he said.
K & L Gates tax partner Matt Cridland said the decision means the government will have to make a policy decision as to whether the $75,000 exemption should apply to Uber and taxi drivers and tax laws need to evolve to deal with technological developments.
"There will be UberX drivers who are casual drivers who will need to pay GST, as opposed to professional drivers who attend to it full-time for their living," he said.