Leasing out cars on ride-sourcing apps is a great business avenue these days. There are various such platforms where you can lease out your cars. In this article, we are going to understand the taxation aspect of sharing cars through a ride-sourcing app.
Things You Should Follow For Tax Return
If you are also indulged in the activity of renting out your car on any ride-sourcing app, then there are some basic things that you must follow:
- Declare the income that you generate from the sharing of your car as other income in your tax return.
- Claim a deduction as other deductions for expenses incurred by you that are associated directly with car sharing.
- Maintain records for income earned and expenses incurred by you.
Claiming Deduction For Expenses
Expenses that you incur in connection with car-sharing can be claimed as a deduction provided that the expenses have a direct nexus with car-sharing activity and you have proper receipts to substantiate expense claims. Here are some of the most common expenses that can be claimed against car-sharing income.
There are two methods that can be used for arriving at the car expenses to be claimed if you are an individual.
Cents Per Kilometer Method
This method provides that an individual can claim expenses subject to a maximum 5,000 income-producing kilometers per car. Thus, you need to keep a count of kilometers used in car-sharing as income-producing kilometers. The claim for expenses is to be made based on a per kilometer rate that is to be calculated by considering all vehicle running expenses. Expenses that are non-running in nature such as interest on a car loan, depreciation, etc. are not considered.
The logbook method allows a person to claim a deduction for expenses based on income-producing use percentage of the car. The information regarding the income-producing use can be derived from the travel details contained in the logbook. The amount can be arrived as follows:
- Identify the total expenses incurred on the car for the entire year.
- Calculate a percentage by dividing the distance traveled for income-producing use by the total distance traveled and multiplying the result by 100.
- Multiply the total expenses arrived at step 1 by the percentage arrived at step 2.
This will give you the amount of deduction that can be claimed as an expense.
A ride-sourcing app may collect membership fees from the owners who have their cars registered with the app for the services and the platform that the app provides. You can claim a deduction for the membership fees you pay to the app company.
Car Availability Fees
Sometimes, ride-sourcing apps place a condition that the car provider makes available his car for a minimum period failing which a fee is levied by the name of car availability fees. The fee that you pay can be claimed as a deduction.
You must maintain proper records so that you are able to substantiate the claim that you make for expenses in your tax return.