This article looks at the tax dispute between the Canada Revenue Agency and Uber Canada Inc. Afterwards, we provide GST/HST tax tips based on the lessons we might draw from the outcome of this dispute.
Uber Canada Inc.'s $600,000 Reassessments for GST/HST Owing
In December 2014, the Canada Revenue Agency (CRA) reassessed Uber Canada Inc. for over $600,000 in GST/HST, penalties, and interest. The reassessments related to Uber Canada's GST/HST reporting periods from October 2012 to June 2013.
In response to the CRA's reassessments, on December 10, 2018, Uber Canada appealed to the Tax Court of Canada.
Uber's notice of appeal alleged that the CRA had reassessed on the mistaken assumption that Uber "was responsible to account for GST/HST on the supplies of transportation services to riders."
Not so, claimed Uber. Uber argued that only its drivers—independent contractors, according to Uber—supplied transportation services to riders. Uber Canada, on the other hand, supplied only marketing and support services. And, Uber continued, it had correctly charged, collected, and remitted GST/HST on its own services.
The Tax Court of Canada's appeals docket shows that, although receiving an extension in February and in May of 2019, the Minister of National Revenue and the Canada Revenue Agency failed to deliver a reply to Uber's notice of appeal.
Uber and CRA Settlement: Joint Consent to Judgement in Favor of Uber Canada
On June 14, 2019, Uber Canada and the CRA filed a joint consent to judgement with the Tax Court of Canada.
The parties jointly consented that the Tax Court of Canada may issue a judgement ordering the CRA to vacate the $600,000 reassessment and entitling Uber to "no further relief"—i.e., each party pays its own legal costs.
As of July 16, 2019, the Tax Court of Canada has acknowledged receiving the parties' settlement but hasn't issued a judgement.
Even if parties jointly consent to a judgement, the Tax Court's procedural rules allow the court to direct that the parties proceed to a hearing or submit written arguments. In practice, however, this is rare.
Tax Tips: Commercial Ride Sharing & GST/HST Registration, Collection, and Remittance
Even if their total annual revenue doesn't exceed the $30,000 small-supplier threshold, all taxi operators must register for GST/HST, charge GST/HST on their fares, and remit the collected GST/HST to the CRA.
To ensure that taxi services and commercial ride-sharing services receive consistent GST/HST treatment, Canada revised the Excise Tax Act's definition of a "taxi business," effective July 1, 2017, to include a self-employed commercial ride-sharing driver. A "taxi business" now includes not only a licensed taxi business but also "a business carried on in Canada by a person of 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."
But this definition excludes "the part of the business that does not involve the making of taxable supplies by the person [...]." A person makes a "taxable supply" only if that person carries on a business. In other words, the new definition of a "taxi business" would exclude Uber or Lyft drivers if they were employees and not independent contractors.
The CRA-Uber settlement suggests that the CRA accepts that Uber drivers are independent contractors and therefore required to withhold GST/HST on transportation services.
Yet the question whether an Uber driver is an independent contractor or an employee may become a live legal issue. At the beginning of 2017, an Uber driver sought certification of a class-action lawsuit against Uber Canada for violating Ontario's Employment Standards Act, 2000. If this class-action lawsuit proceeds to court, a salient issue will be whether Uber drivers are employees or independent contractors. Uber persuaded Ontario's Superior Court of Justice to stay the class-action lawsuit in favor of arbitration. Ontario's Court of Appeal overturned that decision and permitted the driver to continue pursuing the class-action lawsuit. Uber appealed to the Supreme Court of Canada, who, on May 23, 2019, agreed to hear the appeal.
Because Canadian tax law hinges on the private-law characterizations, this case may have tax implications for both Uber drivers and Uber itself.
But, until then, Uber drivers are taxed as independent contractors.
So, if you are a driver for Uber, Lyft, TappCar, InstaRyde, facedrive, RideCo, or Bolt (Taxify), you must:
- Register for GST/HST, even if your annual revenue doesn't exceed the $30,000 small-supplier threshold;
- Charge and collect GST/HST on all ride-sharing services;
- File a GST/HST return; and
- Remit GST/HST to the Canada Revenue Agency.
By failing to comply with these obligations, you leave yourself vulnerable to steep monetary penalties and criminal prosecution.
If you think that you may have overlooked a GST/HST obligation, consult with one of our experienced Canadian tax lawyers. We can review your file and advise you on options to remedy your tax situation. For example, you may qualify for the Voluntary Disclosures Program, which allows you to fix past non-compliance while avoiding criminal prosecution and minimizing interest and penalties.