The “Uber Tax”: New Rules Require Uber Drivers to Collect GST/HST
Do Uber drivers pay tax in Canada? The answer for Canadian Goods and Services/Harmonized Sales Tax (“GST/HST”) will now be “Yes” starting July 1, 2017. (Technically, customers “pay” the GST/HST; drivers are required to “collect” the tax).
Today’s federal Budget announced proposed changes to the tax rules which are intended to require drivers of car sharing services such as Uber to register and charge GST/HST, even if they are “small suppliers.” This is a significant change because many Uber drivers would likely be small suppliers (making less than $30,000 in fares in the prior calendar year) and not required to charge GST/HST under the current rules.
The new rules get around a limitation in the current rules which requires only “taxi businesses” to register and collect GST/HST on fares regardless of taxable revenues. If an Uber driver is not a taxi business, he or she only needs to register for GST/HST if sales exceed the “small supplier” threshold. Currently, “taxi business” is defined to require that the fares be regulated under the laws of province or Canada. While the Canada Revenue Agency took a very broad interpretation of what constitutes “regulated” in a 2004 ruling, this was view was questionable and the answer likely varied based on jurisdiction. It appears the new rules seek to avoid uncertainty by broadening the definition of “taxi business” to include “persons engaged in a business of transporting passengers for fares by motor vehicle within a municipality and its environs where the transportation is arranged for or coordinated through an electronic platform or system, such as a mobile application or website” (there limited exceptions, for school transportation for example). Note the person has to be engaged in a “business,” so casual or infrequent drivers will have to determine if they are caught.
However, the new rules raise important technical problems that drivers will face in complying with the new rules. For example, ride sharing apps typically collect fares electronically and automatically by the app with no input from the driver (which is part of their appeal). How will drivers actually collect the GST/HST, if the app is not and cannot be set up to charge the tax? Will drivers be forced to pay it out of their own pockets or does the tax they cannot collect become a bad debt? Will drivers (like most other GST-collecting businesses) be required to give receipts with their GST number?
There will likely also be difficult questions about enforcement. Will CRA actually try to identify and audit individual drivers, who could number in the tens of thousands? How cooperative will Uber (or other ride sharing facilitators) be in providing information regarding drivers and their earnings? If that information is controlled and stored by an entity outside Canada, can CRA compel its production? Will CRA instead try to make Uber somehow withhold tax on behalf of drivers? If so, on what legal basis?
Importantly, the proposed rules do not answer the “Million Dollar Question”: Who is providing the transportation service, individual drivers or Uber, and thus required to collect tax on fares? This overlaps with the legal issue of whether drivers are employees or independent contractors, which the proposed rules do not address. This has been litigated by Uber in various jurisdictions with varying results. Given that proposals close off the small supplier loophole really only relevant to drivers, it appears that the government wants to “cover all the bases.”
Nor do the proposed rules address the issue of whether GST/HST applies to Uber’s fee or commission which it retains from fares (assuming drivers provide the actual transportation service and Uber provides a ride hailing facilitation service). The general rules for non-residents and the “carrying on business” nexus test should continue to apply.
If the proposed rules are enacted into law, they would become effective July 1, 2017 as mentioned above. This leaves only a few months for drivers to get ready. But it is unclear how drivers are actually supposed to comply with these rules and the government has provided no guidance. This leaves drivers exposed to risk, even if they want to comply.
To help drivers under the rules and voice their concerns, Thang Tax Law has started a crowdfunding campaign at Funded Justice.
Simon Thang, LL.B, LL.M (Taxation) is Toronto tax lawyer advising exclusively in the areas of Canadian sales tax (GST/HST, PST), and customs and trade. He is the principal of Thang Tax Law.