Rideshare and gig drivers with ATO debt: why it builds and what to do

Why the debt builds

Four things stack up, usually without the driver realising until the first big bill.

• No tax is withheld. An employee has PAYG taken out of every pay. A driver is a sole trader paid gross, so the tax on a year's income is due in one lump after the return is lodged.
• GST from the first dollar. The normal rule is that you register for GST once turnover reaches $75,000. That rule does not apply to ride-sourcing. The ATO treats it as taxi travel, so you must be registered for GST before your first trip regardless of how much you earn. Roughly one eleventh of your fares is GST, less GST credits on your costs, and it has to be reported on a BAS monthly or quarterly. Drivers who never registered, or registered and never lodged, can find several years of BAS debt assessed at once. Food delivery and other gig work is not caught by the taxi rule and uses the ordinary $75,000 threshold, but the income tax still applies.
• PAYG instalments after the first good year. Once you have lodged a return with business income and tax payable, the ATO puts you on quarterly PAYG instalments for the current year. Year two is the trap: you are paying last year's tax bill and this year's instalments at the same time.
• Cash flow. Fuel, car finance, insurance and rent get paid first because they cannot wait. The ATO can wait, so it does, and interest at 11.43% a year builds on the balance.

What to do, in order

1. Lodge everything. Every missing BAS and tax return. Until you do, the ATO cannot give you a payment plan and may issue a default assessment based on the income the platforms report, without your deductions. Your real figure is almost always lower than the estimate.
2. Get the real number. Log in to ATO online services and note the balance, split into tax, interest and penalties.
3. Set up a payment plan. Debts under $200,000 can be arranged online. Pick an amount you can keep on a bad week, not a good one, because two defaulted plans in 12 months closes the online option. The payment plan guide covers what the ATO accepts.
4. Ask for interest and penalties to be remitted. Not knowing the GST rule is not by itself a reason, but a run of illness, a car off the road or a sharp drop in income often is. Start with GIC remission.
5. Vary your instalments if income has dropped. PAYG instalments are based on last year. If this year is worse, you can vary them down rather than let them add to the debt.
6. Check hardship release for the income tax part. Individuals and sole traders can apply for release of income tax and PAYG instalments in serious hardship. It does not cover GST, so the BAS part stays.
7. Fix the leak. Open a second bank account and move a fixed share of every payout into it, GST plus a slice for income tax. That single habit is what stops the next year's debt.

What not to do

Do not cancel your GST registration or ABN to make the problem go away; the debt already assessed stays, and the platforms report your income to the ATO anyway. Do not ignore letters, because the ATO's next steps for a sole trader are refund offsets and then garnishee notices on your bank account. And be careful with tax debt loans pitched to drivers: compare the interest against an ATO payment plan first. The sole trader guide explains what the ATO can and cannot do to you personally.

What to do next

1. Lodge every outstanding BAS and tax return, using the platform's annual statements for your income and your logbook and receipts for deductions.
2. Log in to ATO online services, note the balance, and set up a payment plan online at an amount you can keep in a slow month.
3. Call the ATO on 13 28 66 to ask for GIC remission and, if your income has dropped, vary your PAYG instalments for the current year.

More questions: 12 Life situations questions answered · Full guide: Can't pay your tax bill