Is it worth driving Uber after paying all the expenses and taxes?
This post is not to discourage Uber drivers who are really working hard and uber has become the main source of income for them, but it is to encourage people to know the bottom line and become more knowledgeable of how much money they are making after paying expenses and taxes.
Driving Uber myself and helping more than 200 uber drivers with GST/BAS and Income Tax Returns, I have gained some valuable knowledge and tricks on how Uber works from a money point of view.
5 Tips On How You Can Make The Most Out Of Uber
I am sharing a few tips in this post which could be helpful for you in making a decision whether you should keep driving uber and manage your expenses or whether you should find another part-time job.
For example, you earn $50,000 a year from your full-time job (on TFN) and drive uber on a part-time basis working 3-4 hours a day and made around $10,000 in a year from uber income after paying uber commission, fuel and all other misc expenses.
Full-Time Job Income – 50k
Uber Income – 10k
Total Income – 60k (50k job income plus uber income)
Tax Payable – 11.6k (refer to marginal tax rates)
Tax already paid – 8k (tax withheld by your employer)
Tax Owing to Taxman – 3.6k
After Tax Uber Income – 6.4k (10k income minus 3.6k extra tax)
Hourly Rate – $8.80 per hour (Assuming 15 hours per week)
As you can see in the above hypothetical example, an Uber driver has only earned $8.80 per hour after paying all the expenses and taxes and I have not accounted for depreciation which is the wear and tear of your car.
Now if this is the case with you, don’t panic, following are 5 tips on how you can make the most out of Uber and become more aware of how to manage your finances.
Keep Track of your income and expenses
Uber is a mini or small business and you are the one responsible to make sure you are earning good enough or not. I know Uber drivers who really work hard and stay focused make good money and I know people who waste time and don’t know what’s going on.
Whether you drive Uber full time or part-time, it is essential to keep track of your income and expenses and know exactly how much money you are making. If you are not doing this, I believe you are driving Uber on a voluntary basis which is not bad either to help people 🙂
Now the next question is how you keep track of your income and expenses and the simple answer is you don’t need software as such, but a simple excel sheet or even journal where you are recording your income and expenses on a daily or weekly basis.
We have some good excel templates which we can email you to keep track of your transactions, please email firstname.lastname@example.org if you want us to email the template.
Knowing your income and expenses, can help you budget your income and how many hours you should be working in a week. At the end of the day, you do not want to work unlimited hours and realise you have made not enough money.
Fully understand your tax obligations
Generally, Uber drivers are responsible to pay two types of taxes and both of them are different. The first one is Goods and Services Tax and the second one is Income Tax.
Goods and Services Tax
Goods and Services Tax was introduced in the year 2000 as an additional tax to be paid by Australian consumers and are 10% of the sales price.
Today, it is compulsory for businesses with a turnover of more than 75k to be registered for GST, but unfortunately for Uber drivers, it is also compulsory to be registered for GST even though their turnover is $1.
Do you know why? This is because Uber is similar to taxi service and back in the year 2000 when the new GST Laws came into place, the taxi drivers started bidding to the passengers that we are not registered for GST and our fares are 10% cheaper. To make it uniform and standard, the Australian Government decided that every taxi driver has to be registered for GST irrespective of their turnover and today the similar laws apply to Uber and other ride-sharing companies.
Simple Facts on How GST Works
Now the most important question is how you manage your GST Obligations and to do this, you only need to know simple facts on how GST works which is demonstrated in the example below.
Let’s say, you pick up a fare from Perth City and drive a passenger to Mandurah and charged $110 for the fare.
And let’s say it cost you around $22 fuel for the car.
Total Sales – $110
GST Collected – $10 ($110 divided by 11)
Uber Commission – $27.50
GST Paid – $2.50 ($27.50 divided by 11)
Fuel Expense – $22
GST Paid – $2 ($22 divided by 11)
GST Owing to ATO – $5.50 ($10 GST Collected minus $2.50 and minus $2 GST Paid)
When it comes to filling out your Business Activity Statement, you are required to report Sales G1 $110 and GST Collected $10 and GST Paid $4.50
This is how simple it is, but if you regularly, keep track of your income and expenses, these calculations will become easier and you can plan in advance how much GST you are required to pay to ATO.
I met many Uber drivers who get confused with GST and Income Tax and think they are the same. To clarify, both of these taxes are different and GST is simply a tax which the end consumer pays and you are only collecting on behalf of the Australian Taxation Office.
Income tax, on the other hand, is payable on your net Uber income after deducting Uber related expenses. The amount of tax is calculated using marginal rates and combining all your income earned for the whole year.
If you want to know the estimated tax, you can always calculate your net income and enter on www.paycalculator.com.au and it is always helpful to do this exercise once a month.
The other common type of tax is called PAYG Instalments which comes under income tax and it simply means you are paying income tax in advance for next year.
When you start a new business, ATO is not aware of how much income we will be earning as being self-employed, but once you lodge your tax returns and pay the taxes, they assume, you will be earning the same amount of income next year and request you to pay the income tax in advance and this is Pay As You Go Tax Instalments.
In case, you have overpaid the tax, you will get a tax refund and underpaid, you will be paying the difference to ATO.
Ask yourself is it worth using your own car or leasing
Sometimes, it is worth renting a car from someone rather than driving your own car for uber. The main reason is that when you use your own car and keep driving for an extended period of time, you are not considering the wear and tear and depreciation for your car.
On average we claim 30-40% depreciation every year to allow for wear and tear and this means the market and diminishing value of your car will go down in the next couple of years.
To do this, you again need to refer to your income and expenses sheet and calculate car operating expenses plus 30% depreciation and see if you can get better rental deals.
Take advantage of new tax incentives
Being a small business, you can definitely take advantage of all the tax incentives available for small business owners. For example, 20k immediate write off is still available until 30th June 2019 and if you are looking to buy a new car, this is the best time to claim GST credits and 100% write off for the car.
For example, if you buy a new car for $22,000, you can claim 2k GST from the taxman and the remaining $20k can be immediately written off saving you around 6k worth of taxes.
A disclaimer, please have a chat with your accountant before making a decision to buy a new car as it may or may not benefit you depending upon your personal situation.
Keep Learning new things
Life is all about learning and growing our skills and becoming better at what we do. If you have decided Uber as your career, it is good to constantly learn and acquire new skills on how you can maximise your profits and where you can pick up most of the fares and how you can impress your customers so you get more tips.
I hope you have enjoyed reading this article and please feel free to contact us at email@example.com or call 1300 751 700 if you have any questions.