The simplest innovations are sometimes the most creative. In Uber's case scenario they targeted a dinosaur aged Taxi industry which hadn't seen any technology changes in over 100's of years. Uber is to the Taxi industry as iTunes was to the music industry #GameChanging. The Taxi industry was devastated with the new entrant Uber. In fact I even saw a video of a Taxi Driver hanging on to a UberX car #StruggleIsReal.
Uber is gaining more and more acceptance from the local municipalities but these Uber drivers need to be aware of the Tax implications that are carried. Firstly, Uber passes the contractor vs employee test where Uber is not considered a employer hence Uber drivers are contractors. Uber does not take source deductions from the driver's pay. However, the drivers might not be aware that they still have to declare the income generated through Uber and remit the respective taxes.
Canada's tax assessment system is a "self-assessment" system where the Canada Revenue Agency routinely audits tax filers. Let's take the scenario where a Uber driver forgot or purposely did not declare the revenue generated by driving Uber on the T2125 (Statement of Business or professional activities) tax return. If the CRA audit the Uber driver, they will not only ding the driver penalties and interest charges but can also charge the Uber driver with a criminal charge. #DontDoIt
Let's think of it this way if you rent out your basement/property and you earn rental income this must be declared during tax season, the same holds true with Uber drivers. Uber drivers must register a HST account number if they anticipate to make over $30,000 annually. Regular businesses usually have to collect the HST portion but in the case of Taxi's and Uber this is already included in the Driver's pay. The 13% HST less business expenses must be remitted from the total sale or using the simple method 8.8% of the HST collected based on sales.
Here's some estimated $ impact numbers. Please don't rely on these numbers solely meant for explanation #disclaimer.
Let's do some #math. If an Uber Driver makes $1000 a week and $4000 a month that's $48,000 yearly. Using the simple method of HST at 8.8% the year-end HST remittance would be $4224, and Fed+Prov Tax cumulative amount of $10,253.
Total Collected Sale = $48,000 (Total Collected from Uber)
Less HST Liability = $ 4,224 (Simple method of calculating HST)
Less Business Expenses = $ 5,450 (Fuel, Repairs, Accounting, Supplies etc)
Less Fed + Prov Tax = $ 8,579 (Using the T2125 form in Profile (Intuit)
Total Net Take home = $ 29,747 (Total net take home income)
It might be worth your time to see an Accountant to ensure you mitigate and understand your potential Uber Tax Liability. Prevention is better than the CRA Tax Sting.
Click on the link below to book a meeting.
- Written by: Jag Bath