The Rideshare Industry Desperately Needs CRA Guidance
March 7, 2020 Andrew AdolphAudits,CRA,Vehicles
Ridesharing has changed how many of us commute — and CRA guidance for rideshare and taxi drivers. Unfortunately, these changes have created complications for drivers and auditors alike and led to calls for better CRA guidance over the rideshare industry.
Why The Rideshare Industry Needs CRA Guidance
Taxi owners may have lost their battle against ridesharing, but they still have a significant tax advantage over their new competition thanks to their Income Tax Act classification.
As of July 1, 2017, the CRA changed the definition of a “taxi business” to include rideshare drivers. This change has faced criticism and calls for better CRA guidance regarding GST and HST eligibility for drivers.
Under the new rule, Uber, Lyft, other rideshare drivers must register for and collect HST on fares, regardless of their earnings. And despite being classified as a taxi service, rideshare drivers can only claim up to $30,000 on their vehicle. On the other hand, taxi owners can write off the entire cost of their cars.
This difference is due to how the Income Tax Act classifies vehicles. According to the CRA, there are two types of automobiles:
- Passenger vehicles, which account for nearly 90% of the cars on the road. In tax terms, they are Class 10.1, which are subject to caps on how much of their cost owners can write off. As of 2001, that cap is $30,000. Vehicles used in rideshare businesses do not qualify for this deduction.
- Motor vehicles, which are automobiles specifically designed for work. Vehicle owners can write off their total value. Taxis fall into this category.
Here is a helpful tool that CRA provides to explain this.
What happens if an individual is a rideshare driver for part of the day, then changes the use of the automobile to deliver groceries, or packages for Amazon, or something like that?
So far in the rideshare era, the only CRA guidance document available is driven by the need to remind readers that drivers must pay 5 cents for every dollar of taxi fare collected (13 cents in Ontario).
Bill C-44 amended the GST rules, but Income Tax rules are untouched. Therefore, the only CRA guidance is GST/HST and Commercial Ride-sharing Services. This page clearly states that the laws that apply to taxis regarding GST purposes are the same for rideshare operators. However, it offers no guidance on income tax treatment.
Whether or not rideshare drivers can claim GST on the purchase price depends on several factors, including the type of automobile and whether a sole proprietor, partner in a partnership, or corporation owns it.
For example, a company can claim GST on vehicles immediately if it owns and utilizes them for business purposes 50% or more of the time. Whether to incorporate depends on the type of vehicle.
CRA Guidance Could Answer Many Questions
Better CRA guidance could help answer questions like, “Is an UBER the same as a taxi?” Because ultimately, it depends on who you ask.
With ridesharing officially here, it won’t be long until CRA auditors grapple with these very issues (if they aren’t already). Additionally, new rideshare drivers should consider incorporation so they can get a faster GST write-off until CRA guidance improves.
And before you purchase a high-end vehicle, do some serious number crunching. Depending on your situation, leasing may make better sense than owning. Owning a car in the company and writing it off can be a trap if you get audited. And unfortunately, it can also be the thing that gets you audited. The auditor will want to see a logbook, and you will need to prove your business use kilometres.
In my 25 years as a CRA auditor, I never once saw a vehicle logbook like the type the CRA expects you to keep. But I was a friendly auditor, and those were simpler times to be a CRA auditor. Today, if you don’t maintain a vehicle log, especially with all the apps available to assist you, the CRA will eviscerate you on auto expenses.
So unless you have a strong financial incentive to own the vehicle in your company, please don’t. Instead, purchase an app (I use TripLog), and pay yourself 58 cents per business kilometre. The app is easy to learn and will learn your pattern.
Plus, your company can deduct it as an expense, and the shareholder/employee doesn’t have to report anything on their personal taxes. And for GST, claim an input tax credit of 2.8 cents per kilometre. This approach is much simpler, lessens your attractiveness as an audit target, and might very well save you in taxes.
You just need to run the numbers first. For more info about how to do this, book a free appointment. Call 604-240-6173 or email firstname.lastname@example.org. You can also check out the links below to find more resources and information:
- GST Info Sheet GI-196, GST and Commercial Ride-sharing Services;
- GST Memorandum 8.2, General Restrictions and Limitations;
- Passenger v Automobile Chart
Andrew Adolph is a CPA and former CRA auditor with 25 Years of experience. He helps businesses to not par any more in sales taxs than the law says they must and acts as an advocate for you if you are being audited, so you can fous on your business.