Introduction - Uber & Lyft Drivers GST/HST Obligations Following Changes to the Excise Tax Act
Beginning July 1st, 2017, all Uber, Lyft and other self-employed commercial ride-share drivers must register for and then charge, collect and report GST/HST to the Canada Revenue Agency (“CRA”). The new GST/HST tax obligations come into effect following the amendments to the definition of “taxi business” in the Excise Tax Act.
New Definition of “Taxi Business” Now Includes Uber & Lyft Drivers
The definition of “taxi business” has expanded. Prior to these amendments, a “taxi business” was restricted to “a business carried on in Canada of transporting passengers by taxi for fares regulated under the laws of Canada or a province”. After July 1, 2017, the definition of a “taxi business” is no longer restricted to that limitation. Instead, taxi business is defined as “a business carried on in Canada by a person transporting passengers for fares by motor vehicle... within a particular municipality and its environs if the transportation is arranged or coordinated through an electronic platform or system”.
This means that the definition of “taxi business” has now expanded to include, in addition to taxi drivers, the drivers of commercial ride share programs such as Uber and Lyft and other self-employed commercial ride share drivers. You are considered a self-employed driver if your taxi or motor vehicle is owned by you, or it is leased from an owner either for a flat fee or for a percentage of the fares you collect. It is important to note that sightseeing services and school transportation services are excluded from this new definition.
For all the drivers who meet the new definition of “taxi business”, registering for a GST/HST account is mandatory. All such drivers are also required to charge, report and remit GST/HST to the Canada Revenue Agency. Generally, “small suppliers”, taxpayers engaged in a business activity with annual revenues of less than $30,000 are not required to register for a GST/HST account. This exemption, however, does not apply to commercial ride-share services drivers, including taxi drivers. This means that even part time and casual drivers who meet the definition of a “tax business” have GST/HST obligations under the new amendments.
Registering for GST/HST for Commercial Ride Share Services
Registering for a GST/HST account is mandatory for all commercial ride share service drivers. Generally, you are required to register for a GST/HST account within 30 days of charging GST/HST on your sales. The effective date of your registration is then backdated by 30 days. For example, if you start working as an Uber or Lyft driver on September 1, 2017, you are required to collect GST/HST on all your fares. Additionally, you have until September 30, 2017 to register for a GST/HST account. The effective date of your registration will be backdated to September 1, 2017.
If you are a self-employed commercial ride-share driver that has been in business before June 29th, 2017, you are required to register for a GST/HST account by July 1st, 2017. Alternatively, if you have just begun or are thinking of working as a commercial ride share driver, or an independent driver providing rides for fares, you are required to register for a GST/HST account within 30 days of the collection of your first fare.
How to Register for a GST/HST account for Ride Share Services
You can register for a GST/HST account online, by telephone, mail or via fax. Registering online is the fastest and most convenient method.
You can create a GST/HST account online by going to the Business Registration Section of the Canada Revenue Agency’s website. If you are opting for this method of registration, you must have a valid Social Insurance Number (SIN), have filed an income tax return with CRA, and not have a Business Number. If you already have a business number and a GST/HST account, you are not required to register a new one. However, if you have a business number, but have not registered for GST/HST account, you are required to register for a GST/HST account.
If you prefer to register by phone, you can call CRA at 1-800-959-5525 and follow the instructions provided.
You may also register by mail or via fax by filing out a From RC 1 (Request for a Business Number), and then faxing or mailing the form to the Tax Services Office or Tax Centre in your area.
Charging and Collecting GST/HST For Shared Economy Drivers
The new tax amendments require that all commercial ride share drivers to charge and collect GST/HST on the fares they collect. The rate of GST/HST depends on the province in which the service is provided. If a driver transports a passenger from across provincial lines, the rate of the GST/HST of the province where the ride started applies.
Reporting and Remitting the GST/HST by Uber or Lyft Drivers
You are required to report and remit your GST/HST by the “due date”. Your due date is determined by your reporting period, which can be quarterly, monthly or annually.
If you report monthly or quarterly, your return is due one month after the end of your reporting period. Your GST/HST remittance is due on the same day.
If you report annually, have a December 31 year-end and have business income for income tax purposes, then you must report your GST/HST by June 15 of the following year. However, your remittance is due by April 30 of that year.
In all other cases, as an annual filer, your GST/HST return is due within three months after the end of your fiscal year end. Your GST/HST remittance is also due on the same day.
Methods for Reporting GST/HST by Uber or Lyft Drivers
For Uber or Lyft Drivers, like all other taxpayers, reporting your GST/HST online is the fastest and perhaps most convenient method of meeting your tax filing obligations. You can report your GST/HST online using the CRA GST/HST NETFILE system. You can also use the My Business Account section on the CRA website, a secure portal which communicates electronically with CRA.
If you prefer not to file your GST/HST online, you can also file your returns in person at a participating financial institutions, such as your local bank. Alternatively, you can mail your paper GST/HST to the address on the return.
Methods for Remitting GST/HST
In addition to reporting, you must also remit the GST/HST you have collected to the CRA. You are required to make this payment by the due date of your GST/HST return. You can make an online payment to CRA by going to the CRA’s website and using the My Payment option. You can also authorize CRA to withdraw a pre-determined amount from your bank account. To set up this option, go to the My Business Account section on the CRA website and follow the directions provided.
How to Calculate the Net Tax for Shared Economy Drivers
As a GST/HST registrant, you are required to report and remit your net tax for each reporting period. You may be able to calculate your net tax using one of two methods: Regular Method or the Quick Method.
Regular Method of Reporting GST/HST
You can calculate your net tax following three simple steps. First, you total the GST/HST amount that you collected or were collectible by you during a reporting period. Second, you calculate the GST/HST amount that you are eligible to claim as Input Tax Credit (“ITC”) and add this amount, if any, to any deductions that you are eligible to claim. Lastly, you subtract from the amount arrived at in the first step, the amount that you arrive at in the second step. The difference is your net tax.
As an Uber or Lyft commercial ride-share driver, you are eligible to claim ITC for any expenses that you have incurred for the purpose of your business. Some common examples of eligible Input Tax Credits are expenses associated with vehicle repairs, maintenance, washes and vehicle leases and purchases.
Quick Method of Reporting GST/HST
You can use the Quick Method to calculate your GST/HST only if your total annual revenues in any four consecutive fiscal quarters over the last five fiscal quarters are not more than $400,000.
In using the Quick Method, you multiply your taxable GST/HST fares, made during a reporting period by a Quick Method Remittance Rate. This rate is lower than GST/HST. However, it is important to note that by using this method you are not eligible to claim Input Tax Credits on most of your business purchases and expenses.
Tax Tips for Uber or Lyft Commercial Ride Share Drivers
An important tax tip is to file your GST/HST by the due date. Failing to file GST/HST may result in severe penalties. In addition, interest is charged on late or insufficient GST/HST payments. To avoid the penalties and interest, it is best to charge, report and remit your GST/HST by the due date.
If you have not been filing your GST/HST on time, it is best to seek advice from a Canadian tax lawyer to assess your eligibility for a voluntary disclosure application. A voluntary disclosure application, if successful, can result in partial interest relief and relief from the penalties imposed.
If you are filing your GST/HST on time, an important tax tip is to keep invoices, receipts, contracts and other business papers in support of your claim for Input Tax Credits (“ITC”). Generally, you can claim Input Tax Credits (ITC) if you have eligible expenses that you use or intend to use only during the course of your business. For a “taxi business” the cost of gas, car repairs, and car washes are some example of eligible expense that you may claim as ITC. It is important to note that you can only claim ITC that relates to a period after you become a GST/HST account registrant. Any expenses you have incurred prior to becoming a GST/HST account registrant is not eligible for an ITC claim, even if you made the payments after becoming a registrant so an important tip is to register for a GST/HST account as soon as possible.