How Are Uber Drivers Taxed in Canada
Allan Madan, CPA, CA
If you live in a major metropolitan area, you have probably heard the term ‘uber’ slowly drifting into everyday conversation. Instead of people saying “let’s grab a taxi”, people are saying “let’s grab an uber” instead. If you have never heard of uber, it is essentially a ride sharing program that is operated from the Uber mobile app or a web browser. You simply signup and pay with a credit card and the app connects you with the closest uber driver using your mobile phone’s GPS location. In most cases, Uber fares are generally cheaper than that of a local taxi service. There are different types of Uber services, with the most popular being the standard UberX drivers. Anyone over the age of 21 with a four-door sedan vehicle and personal auto insurance can sign up to become an UberX driver. Basically, this would make UberX an unregulated taxi service.
In terms of tax implications for Uber drivers, the question is when does Uber stop being a hobby and start becoming a business? The Canadian Revenue Agency, in determining if something is categorized as a business, looks at the amount of time someone devotes to the endeavour and whether there is a reasonable expectation of profit. According to the CRA, in this case Uber is considered a business and thus considered taxable. Therefore, Uber drivers are taxed as sole-proprietors in Canada.
Just like in any other business, Uber drivers must register for an HST account number if they are making more than $30,000 annually. As a GST/HST registrant, you usually have to collect the GST/HST on amounts you charge for taxable supplies of property and services. However, tax is usually already included in taxi and limousine fares. For more information on this, please refer to the CRA website.
Uber drivers are not considered employees of Uber but are considered independent contractors. This means that the individual is responsible for all taxes and it is not withheld from their pay cheques. The individuals will be responsible for paying the full amount of taxes when it comes to filing their tax return at the end of the year. Uber drivers need to declare the cash value of the services on their T2125 on their tax return. This is the statement of business or personal activities. If the CRA discovers that a taxpayer has not reported income, the individual will face interest and penalties. Follow this link for assistance on how to complete Form T2125.
Like any other business, self-employed individuals are allowed to declare expenses to deduct against their income, which also means they need the right documentation to back-up those claims. For Uber drivers, a detailed car mileage log is a must. The mileage log must include the destination, reason and distance for each business trip. Drivers must also log all their personal trips taken in the same vehicle so they can calculate the business portion of their car insurance and other deductible costs. The Madan Chartered Accountant website provides more information on tax write-offs for small businesses.
Uber drivers are taxed on their net income. You figure out your net business income by subtracting the business expenses from the business income. As mentioned before, an independent contractor is responsible for all the expenses that arise when using their car. Then the net income is taxed and based on that amount, the portion of tax payable is calculated.
The biggest issue for these people becoming self employed is keeping documentation. Many people who begin using Uber part time do not consult an accountant or other tax professional to get their accounts set up correctly. Or they do not separate between business and personal use. If by chance the individual gets audited, they will need to provide proof of the expenses they are claiming. If the CRA discovers unreported income, the person will face interest and financial penalties.
If someone realizes they’ve been neglecting to declare income, it’s best to get ahead of the CRA and offer up the information through the voluntary disclosures program. The individual will still be charged interest, but no financial penalties will apply. For more information on the voluntary disclosure program, please visit the following website http://www.cra-arc.gc.ca/voluntarydisclosures/.
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CPA, CA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
Hi
I am a Uber driver
Do I have to declare incontax if I make less than 30.000 with uber?
Hi Paula,
Yes, you have to declare your income earned from Uber even if it’s less than $30,000. Report the income earned on form T2125, which is attached to your T1 Personal Tax Return.
Hi,
I have a question in regards to my full time income and T2125 income.
Example: If I have a full time job Monday-Friday (9-5). Say I make 40,000 net, and I am driving for UBER part-time and make 20,000 gross and 6-10,000 net do I have to pay HST? Is the $30,000 limit specific to T2125 income?
Thank you,
J
Hi Jay,
You must begin collecting HST if your total sales from Uber are $30,000 or more. Your income from your full time job does not matter.
“Hello, I have question regarding driving for uber and claiming expenses. I have a full time position and have just begun to drive for uber partime (I don’t think I’ll be making more than $10,000 per year). Do I need to register for a business license in ontario , to be able to claim expenses on the T2125 form. If so , is there a specific “”service/function”” I need to show that I perform to be able to claim expenses.
Thanks
Steve”
“Hi Steve,
If you are operating under your name, you do not need to register your business with the Ontario Ministry of Government Services. You should fill out form T2125, and attach it to your personal tax return.”
“Hi Allan, If you are not collecting HST can your expenses includes HST or only the sales price?
Thanks,
Melissa”
Hi Melissa,
If you are not collecting HST, your expenses can include HST for tax purposes. In other words, HST paid can be claimed as a tax deduction.
“Hi,
1. What if I buy a car let’s say for 5000 $ and use it for both my full-time job and part-time job (UBER).
can I depreciate 30 % of the value of the car?
2. If I am starting a business (incorporated). Do I have to register the car under my incorporation ? Or Still I car leave it under my name and deduct the expense of both uses in Uber and my incorporated business.
Thanks”
Hi Fakhfekh,
“Yes, you can claim depreciation on your vehicle if you personally own it. The depreciation claimed must be prorated based on the KM’s driven for business purposes.
For a corporation to claim depreciation on a vehicle, the corporation must own it.”
”
Hi,
1. What if I buy a car let’s say for 5000 $ and use it for both my full time job and part time job (UBER).
can I depreciate 30 % of the value of the car.
2. If I am starting a business (incorporated). Do I have to register the car under my incorporation ? Or Still I car leave it under my name and deduct the expense of both uses in Uber and my incorporated business.
Thanks”
Hi Fakhkekh,
“Yes, you can claim depreciation on your vehicle if you personally own it. The depreciation claimed must be prorated based on the KM’s driven for business purposes.
For a corporation to claim depreciation on a vehicle, the corporation must own it.”
“Appreciate the quick response, so I will have less than $30,000 in Sales thus I do not have to collect HST.
When I do my expenses i.e Gas prorated at my Business Km-Personal/Total X Expense do I include HST or exclude it. Since I am not collecting HST am I allowed to include HST in my expense or is it only the sales price I can expense?
Example: Gas = 100$ (80% Business Driving, 20% Personal Driving)
100$ = (87$ Sales Price – 13$ HST)
Do I expense 100×0.8 or 87×0.8?
Thank you,
Jay”
hi Jay,
“You will claim $100 x 80%. In other words, the HST paid can be treated as an expense.
“
“Hi Allan,
Do the fees Uber deducts (mainly the 25% uber fee, but also the $2.50 rider fee) qualify as a tax deduction?
I just started recently and have been keeping a log, but the way I do it is I us my trip meters for when I’m online and just record the km total when I go offline – will this be sufficient in CRA’s eyes? My point is that the km’s I drive while on a trip aren’t the only business kms, so relying on just the fare km’s is understating the business kms.
Lastly, business-use-of-home expenses. Technically I need an office to do all the administrative work associated with driving. How would CRA view claiming 5% even if the office actually takes up more than 5% of the living space?
Thanks for your feedback.”
“Hi Darryl,
The fees that Uber deducts can be claimed as an expense by you. Yes, you should your trip meters from the point you go online and when you go offline to determine the KMs driven for business purposes.
If your home office is your principal office then you can claim home office expenses. Remember to prorate those expenses by the size of your home office relative to the size of your home.”
Hi I start driving for uber from June this year it going to less then 30.ooo end of year so do I have to pay HST to revenue canada.thanks
Hi HR,
No, you do not need to register.
“hi, Allan!
I have a question.I am Uber passenger, not a driver most of the time.Can I claim it as expenses?”
Hi Kareen,
”
A passenger cannot deduct Uber fares paid, unless he/she incurred these costs in the course of carrying on a business.”
Can I claim $0.54 per km for the km I put on while driving for uber?
Hi Irfan,
No, you cannot do this. The 54 cent rate is meant for employees that use their personal vehicles to carry out their dues of employment.
Hi
Am a uber driver. also regestered my HST. i want to make my HST every 3 months. what all i can claim in HST and which form should I use?
Thanks
VJ
Hi Vijay, the CRA should send a pre-populated HST return to you for your completion, containing your basic information (HST number, business, name, address, and reporting period). If you did not receive a HST return to complete from the CRA then please contact them at 1-800-959-5525.
You can claim-back the HST paid on business expenditures such as:
– advertising
– meals and entertainment (50% only)
– insurance
– dues and memberships
– office expenses
– supplies
– professional fees
– rent
– travel
– vehicle
Hi, Can an Uber driver incorporate in Canada and run all their income through a corporation instead of sole propietorship?
Hi Rick, yes, they can, so long as Uber does not have an internal policy against incorporation.
Hey Allan.
Example an uber driver tally’s up in 12 months sale = 100K drivers share value after ubers commission.
Hst would be 13K right.
Lets say expenses = 60K
How much HST does the driver owe the GOVT?
Thanks.
Hello,
You can deduct 50% of meals and entertainment expenditures. For example, if you take out a customer for a meal, then the total bill is 50% deductible.
Meal expenses tax deductible?