Many individuals have taken advantage of the surging popularity of ridesharing as a form of transport within Vancouver and other big cities around Canada, as such there have been a large increase in the number of individuals acting as rideshare drivers. A lot of income will have ben generated from rideshare services performed over the tax year, and this type of income requires income and expense declarations which can be more tricky to report to CRA (Canada Revenue Agency) than income earned through a company’s payroll.
How does rideshare income affect your tax return?
Although income is being earned via a rideshare provider, the income is technically employment income and therefore it is not run through a payroll system where tax is deducted at source. As someone who earns rideshare income you are technically operating as a contractor, this means you are required to declare your contractor income earned during the tax year to CRA, and you will then owe tax on that income to CRA when filing your taxes at year end.
This may sound intimidating knowing that you will owe tax on that rideshare income earned, however you can reduce your taxes owed to CRA by claiming expenses against your rideshare income
How does claiming expenses impact your tax return, and what expenses can you claim on your tax return?
As an example. If you earn $10,000 in rideshare income and claim zero expenses, you will owe tax on the full $10,000 amount. If you earn $10,000 but are able to claim $4,000 in expenses you will only owe tax on $10,000 – $4,000 = $6,000. It is clearly beneficial to claim expenses against your rideshare income to reduce the amount of tax owed to CRA at year end.
To claim expenses on your tax return, they must be allowable by CRA. As a rule of thumb, any reasonable cost that was incurred in order to specifically earn your contractor income should be allowable. For example. Buying gas to allow you to operate your rideshare vehicle is allowable as without it you would not be able to operate the vehicle and generate income. However, buying Vancouver Canucks tickets would not be allowable as the tickets are not required in order to generate income from ridesharing.
Common examples or expenses to be claimed on your tax return related to ridesharing would be gas, insurance, repairs and maintenance of vehicle, cell phone service, vehicle lease costs, NOT Vancouver Canucks tickets
Keeping track of expenses and receipts
When filing taxes at year end it is important to keep track of expenses as well as the receipts related to those expenses. Being organized and tracking our expenses will allow you to file your taxes more easily and ensure that the correct information is being reported to CRA. CRA can request copies of receipts up to 6 years after the tax year has been filed, therefore it is important to make sure you have correctly/safely stored your receipts. One good method to ensure the safety of your records is to scan copies of your receipts and store them on your computer or a hard drive.
Importance of correctly reporting information to CRA (Canada Revenue Agency)
When submitting income and expense information to CRA on your tax return it is important to ensure the information is accurate. If CRA audit you and ask for proof of the totals of expenses being claimed on your tax return, you will need to be able to submit that proof to them. If CRA deem that you have not been truthful with the information submitted to them it can result in penalties being issued.
Questions and assistance with filing your tax return
Filing taxes as a contractor can be quite tricky as there are a lot more expenses available to contractors. If you have any questions regarding your tax return or are looking for assistance with your contractor tax filing, please contact us at firstname.lastname@example.org or visit our Vancouver office*, and we will be more than happy to assist. Tax doesn’t have to be taxing!
*At the time of publishing our Vancouver office is not open for visits due to COVID-19. Please reach our team via email – email@example.com