Employers across Australia who have been letting their staff use ride-sharing services such as Uber, rather than a licensed taxi, could be liable for big tax bills, the Australian Taxation Office has confirmed.

Key points: The ATO says Uber and other ride-sourcing cars are not taxis for the purposes of fringe benefits tax exemptions

The ATO says Uber and other ride-sourcing cars are not taxis for the purposes of fringe benefits tax exemptions But it says Uber and other ride-sourcing drivers are like taxi drivers when it comes to paying goods and services tax

But it says Uber and other ride-sourcing drivers are like taxi drivers when it comes to paying goods and services tax The ATO's decision comes after almost two years of industry consultation, but one tax partner described it as a 'contradiction'

This month the agency declared on its website that while Uber and other ride-sourcing drivers are taxi drivers who have to register for and pay goods and services tax (GST), Uber and other ride-sourcing cars are not taxis for the purposes of fringe benefits tax (FBT) exemptions.

Pilot Partners director of taxation services Murray Howlett said there was a "contradiction at play" in the ATO's decision as it did not leave people feeling that the rules were being evenly applied.

"Uber drivers are being told they are equivalent to a taxi for the purposes of needing to register for and remit GST, but the FBT concessions available for certain taxi travel is denied," he said.

"One cannot help but think that the way our various state governments have capitulated to the ride-sharing industry should be reflected in our federal FBT laws."

Mr Howlett said businesses may be exposed for any decisions they have made in past years to treat Uber or other ride-sourcing travel for staff as equivalent to taxi travel.

"This may mean a historical exposure for up to six years of FBT returns, which the ATO is able to challenge and re-assess on the basis of the now-defined position," he said.

"Any decisions made in the past are now subject to the stated ATO position. This means that any Uber travel that is caught by FBT because it is not considered taxi travel must now have FBT paid upon it.

"Businesses may need to consider whether denying the reimbursement of Uber fares and only covering taxi travel is preferable in the light of this statement.

"Any businesses who have not paid FBT on Uber fares in recent years will need to review their positions in the light of this ATO statement."

Why Uber drivers still have to pay GST

The ATOs decision comes after almost two years of industry consultation.

In September 2017, the ATO released a discussion paper for public consultation on the interpretation of "taxi" for FBT and the taxi travel exemption.

Taxi travel by an employee has long been exempt from FBT as long as the travel is a single trip beginning or ending at the employee's place of work. The exemption has historically been limited to travel in a vehicle licensed by states and territories as a taxi.

But in 2017 the Federal Court held that UberX drivers were required to be registered for GST on the basis that they were supplying taxi travel, cast doubt over that.

The court found in favour of the Tax Commissioner that 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 taximeter".

While the ATO is pleased the court found that definition applies in the case of Uber drivers having to pay GST, an ATO spokesman told ABC News it always believed that FBT taxi travel exemption did not extend to ride-sourcing services.

"We have maintained our ongoing view that the FBT taxi travel exemptions is limited to travel undertaken in a vehicle licensed to operate as a taxi by the relevant state or territory — that is, licensed to provide rank and hail work," the ATO spokesman said.

"Ride-sourcing is still considered taxi travel for the purposes of GST and there are tax consequences for ride-sourcing."

A spokeswoman for Uber said the company was disappointed with the outcome, but was now working with the ATO to address the inconsistency in the law.

"While it is disappointing that the ATO has decided not to proceed with a practical guidance note in this case, we are working closely with the ATO to address this inconsistency," she said.

"Delivering this would ease the burden for Australian taxpayers and level the playing field between taxi and all rideshare."

She said the company was supportive of efforts by tax authorities and regulators to pursue reforms that reflect the technology changes and innovations in the transport sector.

"Ultimately, we want to see the benefits of ridesharing — from greater reliability, to lower costs and for businesses the ability to redeploy travel spend more effectively — made available to all Australians and all Australian businesses," she said.

Time to change FBT law?

Tax specialist at RSM, Tracey Dunn, said the ATO can only administer the law, it cannot change it, so the onus is now on the Federal Government to act.

"The Government should change the FBT legislation, it would not be difficult," she said.

"All that would be required would be a change to the definition of 'taxi' to include ride sourcing vehicles."

Ms Dunn said society had changed significantly since 1986 when the FBT Act was introduced.

"Legislation should be updated to reflect the fact a vehicle owner can offer a 'taxi travel' service, without the requirement to be registered under state or territory law," she said.

The FBT law was also very specific about what type of travel applies.

"For example, it applies to taxi travel that begins or ends at the employee's workplace or taxi travel arising from the sickness or injury of an employee," she said.

"The FBT exemption doesn't apply to travel from an external function to the employee's home, which I believe is a common misconception by employers."

She said employers worried about having to amend prior year FBT returns should also remember that work-related taxi/Uber travel — for example to and from business meetings — is likely to be a tax deductible business expense and not subject to FBT.