Uber is a ride-sharing platform that many vehicle owners have turned to for an income. From extra money during spare hours to full-time work, lots of people have found that driving for Uber is profitable (and sometimes even fun). Not everyone who begins offering rideshare services on the platform, however, realizes that they effectively become their own business owner the minute they get paid for a ride.
When you begin driving for Uber, you assume the role of a business owner because you aren’t an employee of the platform. This isn’t inherently a bad thing, but it does mean you can get into trouble if you mismanage certain aspects of your efforts. Specifically, there are financial items related to income tax and HST for Toronto Uber drivers to take care of — or else they’ll face penalties and consequences that could be difficult to get out of.
Here’s a guide to income tax for Uber drivers and HST in Toronto.
Uber Drivers Have to Register for HST
Put simply, Uber drivers are responsible for HST just as many other businesses throughout Canada are. This has several implications on what drivers must do, but the simplest and first is that they need to register for HST if the bill more than $30,000 annually across all their income sources.
Drivers can register for an HST number via the government’s online form, mail, telephone or fax. They’ll also receive a business number (BN) when they register, and those who have a BN should already be registered for HST.
Importantly, this registration should be specifically for rideshare driving. Drivers who have HST or BN numbers for other business ventures normally also need a separate one for their Uber driving.
How Often Does an Uber Driver Have to File HST Returns?
Most Uber drivers who are required to file HST returns can file them annually. Drivers with high earnings, however, may have to file quarterly or monthly. The frequency depends on a driver’s annual billings.
Uber Collects the Fares and Does Not Pay HST to the Uber Driver
In Uber’s setup, the platform collects the rideshare fares from passengers and then passes the driver’s share onto them. Uber doesn’t directly pay HST to the government, and it also doesn’t pass on any portion of a fare specifically so that drivers can pay HST. Additionally, drivers are prohibited from collecting higher payments beyond the allowed fare in order to cover HST.
As a result of all of this, drivers are responsible for paying HST on their own and must deduct the payment from the fare that Uber gives them. Not doing this can result in substantial penalties and, if the issue is ignored long enough, other consequences.
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Expenses That an Uber Driver Can Deduct for Canadian Income Tax
Because Uber drivers are essentially their own business owners, they can deduct legitimate business expenses when filing income taxes. Some examples of qualifying expenses usually include maintenance, repair, license, fuel, insurance and depreciation costs. If a vehicle’s used for a combination of rideshare and personal driving, only those expenses arising from rideshare driving qualify.
As deductions, these don’t directly lower how much income tax an Uber driver owes. Instead, the deductions lower the net earnings that a driver must pay income taxes on. Taxes are then reduced proportionally according to a driver’s specific tax situation.
If you drive for Uber and need help with HST and/or income taxes, schedule a consultation today with one of our Toronto HST lawyers today.
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Make sure you keep detailed records of all the expenses you incurred as an Uber driver.