Overall, UBER drivers are effectively independent contractors or self-employed, and therefore must self-report their taxes.
Steps drivers need to be aware of include: filling out T2125 uber tax forms – as statements of business or professional activities, registering for GST/HST accounts, and tracking their driving expenses.
UBER Drivers and Taxes – Implications
Uber drivers do not receive T4 slips and are responsible for their own income tax filing situation. This is because income tax will not have been deducted from the income made with Uber throughout the year.
T2125 uBER Tax Forms
Uber drivers are Uber partners, and as such the T2125 forms are used to report their income and expenses during this partnership.
Tax Impact on Drivers
According to the CRA, drivers which are also formerly also known as “providers of commercial ride-sharing services” are subject to the following special GST/HST rules. These rules currently apply to all taxi operators.
As per the GST rules:
- transportation of passengers by air-conditioned contract/stage carriage or a radio taxi will be levied a 5 percent tax
- Renting of vehicles will be applied a 5 percent tax – However, if fuel cost is borne by the service recipient, then an 18 percent GST will apply to the service provider.
Since July 1st, 2017, Uber drivers are required to register for a GST/HST account.
GST/HST account registration is necessary by self-employed cab drivers by the Canada Revenue Agency to collect and remit HST/GST from their fares to the government. This requirement does not correspond to a certain amount of money being made by cab drivers. Rather, if you drive a cab as a self-employed individual, you must be registered.
Online registration through Business Registration Online is the simplest method. However, it is only available for drivers without any prior business number already assigned.
Drivers with an existing account, for example for a rebate claim in the past, must use either mail or phone to register.
Registration is necessary even if drivers annual taxable ride-sharing revenues do not exceed a threshold of $30,000 and are considered small suppliers. Small suppliers, only have to be registered for ride-sharing services, unless they choose to include other commercial activities.
Expense Documentation and Tracking
Being in business means that you are allowed to claim legitimate expenses against income but you must carefully document these as well as your income. The biggest things for drivers to remember to log are:
- Destination of Every Ride
- Record of Personal Use of Vehicle – in cases where the same vehicle is used for business and personal reasons
Be aware that Canada Revenue Agency loves to microscope vehicle expenses and many people have a hard time getting it right. Only fuel, maintenance, and insurance that applies to the UBER portion of vehicle use is allowed. Proper receipts should be kept for all of this.
Documentation of Other Expenses
Other legitimate expenses would include cell phone, computer, typical office expenses and use of a home office. Even though the application of legitimate expenses will go a long way to minimizing taxes owed and may even result in a net business loss with no taxes owing – drivers are well advised to set aside a portion of their income to cover year-end taxes. This is especially true if they are not comfortable with maintaining a full and accurate set of books. Anything up to 20% of income received by the driver would not be out of line. Better to not need it than not have it.
Since the “no cash” rule applies to money received as well as money placed into driver accounts, an accurate trail exists for Canada Revenue Agency to follow and audit. Drivers beware.
New HST/GST Rates
Since July 1, 2017, Canada’s 2017 budget classified ride-sharing businesses as taxi businesses.
This meant they must pay sales taxes for each ride. This tax on Uber and other ride-hailing services imposes GST/HST on fares, much like they are added on traditional taxi services. This change to broaden the definition of a taxi business ensures Uber and other web-based ride-hailing services are required to charge and remit the tax.
As of July 1, 2017, sales tax requirements changed in Canada. All fares charged by all rideshare partners (drivers like you) are now subject to HST/GST. No matter how much income you earn from ridesharing, this requirement stays the same.
Before July 2017 Tax Changes
Before July 1st, 2017, Uber driver earnings were not GST/HST tax-free. Drivers absorbed HST costs which were to be reported in Form T2125 and submitted with a personal tax return. This included drivers making more than $30,000.00 per year who also must also register for, collect, and submit HST.
A tax professional can help you understand how to remit and file your taxes correctly and claim your potential input tax credits.