The gig economy

More and more prevalent, especially with the accessibility of mobile technology, the gig economy has revolutionized self-employment income.  What is it, and what are the tax implications?

The New Way of Making Business Income

No longer is it mandatory for the exchange of goods and services, and the paperwork that comes with it, to happen in person. For instance, if you’re an Uber or Lyft driver, Etsy seller, or Airbnb host, you know that every aspect of the seller-customer transaction is automated and facilitated by the company. This new way of doing business has completely changed the transaction and relationship between merchants and customers.

There are several platforms that are offered in the sharing economy: ride sharing, through taxi services like Uber and Lyft, food delivery like Uber Eats and Skip the Dishes and rental services like Airbnb (house rental) and Turo (car rental).

Tax Implications

For ride sharing and food delivery services, the drivers are considered to be self-employed. Of course, expenses such as fuel, maintenance, insurance, depreciation (if applicable), and lease payments (if applicable) are deductible. However, these expenses will be prorated (divided proportionately) based on how much your vehicle was used for your ride-sharing business.

For rental services like Airbnb, the income can be either a rental or a business. It all depends on what services you provide the short-term tenant. As you get ready to file, ask yourself these basic questions:

• Do you provide laundry service?
• Do you provide meals?
• Do you change the bedding during your guests’ stay?

If the answer is “yes” to these questions, you are considered a hospitality business, not a landlord. If you only provide keys and access to the property and nothing else, you are considered a landlord.

As far as sales taxes are concerned, the following applies:

• For ride-sharing services, sales tax must be charged for every ride provided due to the 2017 budget amendment to the Excise Tax Act (ETA) which extended the definition of taxi business [ETA 123(1)] to include these services. These types of business do not fall under the exclusion of a small supplier [ETA 148(1)] and must charge sales tax regardless of the income earned [ETA 240(1.1)]. In Quebec, it is Uber and not the driver that remits the sales tax.
• For rental services, sales tax is also required to be charged if the rental to the customer is for less than 30 consecutive days [ETA Schedule V, Part I, section 6]. However, the small suppliers’ exclusion does apply for this type of service [ETA 148(1)].