On February 17 2017, Justice Griffith of the Federal Court of Australia delivered his decision holding the definition of a taxi was encompassing of the services Uber provided. At a basic level, the decision means the Australian Taxation Office can now pursue the ridesharing provider with the intent of collecting goods and services tax (GST).

More specifically, the Court’s reasoning turned fundamentally on the definition of “taxi travel” under A New Tax System (Goods and Services Tax) Act (the GST Act). It was held that the literal or the trade meaning was indeed a combination of the two being a composite phrase. This was subsequently dismissed by Justice Griffith, who found the definition to be sufficiently broad to cover this distinction.

The recent judgment brings the drawn-out appeal process originally filed in July 2015 to a conclusion. From the outset, Uber had been contesting the ATO directive that its drivers were legally obliged to pay GST or risk a potential fine of $3600.

The central question of the case centred mainly on what features exactly constitute a taxi or limousine, both of which are taxable under the GST Act. Following the pre-court hearing, a key distinguishing factor argued by counsel for Uber was the app based e-hailing associated with calling an Uber, differentiated it from the conventional street hailing of standard cabs. The case was part-heard in July 2016, with Uber continuing to allege the ruling unfairly targeted Uber drivers and partners.

Definition of “Taxi Travel”

A question at the core of the case was the interpretation of the word taxi in the context of the GST Act. Justice Griffith’s finding began with looking to the purpose of the legislation.

With consideration to the historical circumstances where not all taxi drivers had paid GST, the intention was inferred in part to have been to ensure that all drivers fell under the umbrella of “taxi travel”, something highly suggestive of it being a widely encompassing term. The case of Saga Holidays Ltd v Commissioner of Taxation was also cited to provide justification for the non-technical, practical and common sense reading of the statutory text. Nor did it matter that Uber was not envisioned at the time of drafting, given the industry the act governed was found still applicable to the ridesharing service.

On the matter of whether or not taxi travel was a composite phrase, Justice Griffith noted the presence of “or” in the phrase “taxi or limousine” from the GST Act definition, implied that while the vehicle types were different were different, the linking factor, the travel for a fare, although the methodology for calculating it was different, was the same. For this reason, Uber was included in this sufficiently broad definition of taxi travel and was ordered to pay costs.

Effect on UberX Drivers

One of the obvious consequences for UberX drivers is they must now calculate GST on each ride. There are a number of freely available tools which they may use to do so. Uber is also expected to provide guidance materials to its drivers. Drivers must register an ABN if they haven’t already done so, and can do so under the registration category 46231 Taxi Services.

As they are now required to pay GST, drivers will also need to lodge a Business Activity Statement or BAS. A BAS is a reporting document through which contractors, in this case Uber drivers, declare their earnings and GST to the ATO. Depending on the choice of reporting period, a BAS will have to be submitted either quarterly or monthly.

Another likely result is that Uber will increase its share taken from drivers, something which has been known to happen in the past with little notice provided by the company when doing so.

Effect on Passengers

There is a high chance that costs will be passed on to customers in response to the determination. If past actions are anything to go by, Uber has already attempted to attribute a 10% pricing surge to the ATO in the wake of the directives issued.

Implications for the Sharing Economy at Large

Uber is certainly not the only company in the sharing economy space to be reliant on contractors to provide its services. With the precedent the ruling brings, similar legal action could also be brought against startups which may engage in contract work they view as tax exempt, where traditional industries are legally obliged to pay GST.

Food delivery startups and freelancing sites are notable relevant examples that potentially could make similar claims. It also reflects an increasing trend and renewed effort by authorities to ensure that disruptive companies are subject to the same regulatory conditions as legacy industries. Neither does it bode well for the more aggressive approaches to regulatory affairs which have so far have produced varied results for Uber. Indeed, such efforts, the legal precedent and the sentiment accompanying the decision more may lead to disengagement and distrust towards startups from legislators.