Millennials may believe that the sharing economy is the economy, but our tax system needs time to adapt. In the breach, both purveyors and consumers may be unclear as to the true ultimate economic cost and value of these novel offerings.
Arguably, the poster-child for the new economy is Uber, the ride-sharing technology company that has disrupted the taxi industry across the globe. This and other new technologies can also be disruptive to tax authorities: What jurisdiction can levy tax? Who do you collect it from? And as a starting point, is it even something that is taxable?
In this last respect, the 2017 Federal Budget has brought some clarity to the intersection of ride-sharing and taxis for GST/HST purposes.
CRA and the sharing economy
For a few years now, the Canada Revenue Agency has used news releases and its own website to make taxpayers aware that tax obligations arise out of the sharing economy. It enumerates five sectors that have emerged: accommodation sharing, ride sharing, music and video streaming, online staffing and peer/crowd funding.
Income from sharing-economy activities must be reported for income tax purposes, whether earned by an individual or a registered business. As well, these activities are often caught by GST/HST, imposing collection, remittance and reporting obligations.
Excise Tax Act (R.S.C., 1985, c. E-15) – GST/HST small supplier rules
Suppliers of goods and services covered by the GST/HST must register and comply with the rules under the Excise Tax Act (ETA). However, s.148(1) relieves certain small suppliers who supply less than $30,000 annually in goods or services from having to collect the tax. As it doesn’t collect and remit the tax, a small supplier is also not entitled to claim input tax credits (which are available to registrants).
This general rule is then modified in s.240. Section 240(1) sets out the requirement for suppliers to be registered under the ETA, excepting small suppliers and a few others from registration. There is then an exception to the exception:
Taxi business – s. 240(1.1) Notwithstanding subsection (1), every small supplier who carries on a taxi business is required to be registered for the purposes of this Part in respect of that business.
Uber Canada inc. c. Agence du revenu du Québec, 2016 QCCA 130
Uber appealed a motions judge’s ruling that denied its attempt to obtain a return of property seized from its premises under warrant by Revenu Quebec. Among the issues raised in the appeal was whether certain Uber drivers were carrying on a taxi business. Section 407.1 of the Quebec legislation has similar wording and effect as ETA s.240(1.1).
Uber lost its appeal and subsequently negotiated an agreement with Quebec regulators (September 2016) requiring its drivers in that province to register for GST and QST. This appears on the Uber website, but there is no mention of other provinces (at time of writing).
Federal Budget 2017 – Amend ITA s.123 definition of “taxi business”
In the Budget, the government noted the similarity between commercial ride-sharing services facilitated by web applications and traditional taxi services. However, for a variety of regulatory reasons, under current tax rules ride-sharing may not be subject to the same GST/HST rules applicable to taxis.
The existing definition in the ETA is one brief sentence referring specifically to transport by “taxi”. To place matters on a level footing, the definition will be expanded to include “taxi or other similar vehicle”, including transportation “arranged or coordinated through an electronic platform or system”.
- While new technologies like ride-sharing may quickly change commercial dynamics, rest assured – unfortunately for individual wallets – that the tax system will eventually follow.
- For drivers, it seems likely that the central ride-sharing service will take care of GST/HST collection and compliance (as is the case in Quebec now). It remains to be seen how demand may be affected by this narrowing of cost differential vis-à-vis traditional taxis.
- For consumers, the ETA amendments to the definition of a taxi business come into effect as of Canada Day, 2017. Enjoy the ride while you can..”