Taxis, Taxes, and the Complexity of Compliance in the Sharing Economy

The growth of the "sharing economy" is enabling new forms of business organization, characterized by a proliferation of small sole-proprietor businesses carried on through a centralized Internet platform. These structures pose new interpretive and compliance challenges for the tax system. The "Uberization" of the taxi industry is one example of such a structure, and shows the complexities that can arise.

Under general GST/HST rules, most suppliers in the sharing economy would be eligible for the small-supplier exemption (applicable to persons who sell no more than $30,000 in goods and services during the year) and would not be required to register for or collect GST/HST. However, subsection 240(1.1) of the ETA specifically requires registration and collection by any supplier carrying on a "taxi business," regardless of the small-supplier exemption. For this purpose, subsection 123(1) defines a "taxi business" as "a business carried on in Canada of transporting passengers by taxi for fares that are regulated under the laws of Canada or a province."

The meaning of "taxi business" in the sharing economy was at issue in Uber Canada inc. c. Agence du revenu du Québec (2016 QCCS 2158; aff'd. 2016 QCCA 1303; leave to appeal to SCC being sought), which dealt with the correctness of certain search warrants. In that case, Uber Canada pointed to the definition of "taxi" in the Highway Safety Code (Quebec) ("a motor vehicle operated under a permit issued in compliance with the Act respecting transportation services by taxi"); Uber Canada argued that because its drivers did not hold permits, regardless of whether permits were legally required, they were not driving "taxis" and therefore were not engaged in a "taxi business." Additionally, Uber Canada argued that the fares of UberX drivers are not set in accordance with the prices regulated by the Act Respecting Transportation Services by Taxi, and are therefore not "regulated under the laws of Canada or a province."

The motions judge, Cournoyer J, found against Uber on its taxi-business arguments. Cournoyer J was apparently troubled by the idea of allowing Uber and its drivers to benefit from a decision to (illegally) operate without permits: "We cannot affirm that one escapes the application of a law on the basis of one's criminal activity [délinquance]" (paragraph 207; our translation).

It is not clear how the illegality of the drivers' operations should figure into the tax analysis here. Indeed, a strong argument can be made based on Canadian tax jurisprudence that (absent specific rules) the criminality or immorality of an activity should not affect the tax outcome (Canadian Imperial Bank of Commerce v. Canada, 2013 FCA 122; but see Hedges v. Canada, 2016 FCA 19). However, it appears that the same result could be reached simply by reading (as Cournoyer J also appears to have done) subsection 240(1.1) purposively as applying to any business activities subject to the provincial taxi regimes, regardless of whether the vehicle involved is specifically defined as a "taxi." Indeed, there is no indication in the ETA that it adopts or is limited to the definition of "taxis" found in the Highway Safety Code (Quebec) or other similar provincial jurisprudence. Furthermore, the ETA requires only that the fares be regulated by law, not that the taxi operator actually charge the required fares (or that fares even be set by anyone: CRA Headquarters Ruling RITS no. 55206, November 9, 2004).

This issue has now been resolved in Quebec by an agreement between Uber and Revenu Québec (though the criminal investigation relating to past activities continues), whereby Uber must ensure that Quebec drivers are registered for the GST and QST and that the taxes are collected. On its English-language Quebec website, Uber Canada advises its drivers to register for the GST and QST and assures them that "Uber concluded an agreement with Revenu Québec to charge and pay on your behalf GST and QST." For drivers in other provinces, Uber's FAQ merely refers to the small-supplier threshold and states (in spite of the Quebec jurisprudence) that GST/HST does not have to be collected.

What is a ride-sharing driver in the "rest of Canada" to do? It appears that the safest approach is for a driver to (1) register for GST/HST purposes specifically as an operator of a "taxi business" pursuant to subsection 240(1.1) and section 171.1 of the ETA, (2) provide clearly visible notice to riders that taxes are included in the fee (as required by regulation 2(1) of the Disclosure of Tax (GST/HST) Regulations), and (3) remit a portion of the fees that he or she receives on account of the tax. But this approach is bound to be unpopular, since the drivers do not set their fees and would effectively be remitting the taxes from their own pockets.

Even more recently, the status of Uber drivers as independent contractors was called into question when a UK Employment Tribunal decision ruled that certain drivers were legally employees of Uber (Aslam v. Uber BV, Employment Tribunal, October 28, 2016). If that decision were followed in Canada, the tax obligations of Uber and its drivers would be radically changed.

Ian Caines and Zvi Halpern-Shavim
Blake Cassels & Graydon LLP, Toronto

Canadian Tax Focus
Volume 7, Number 1, February 2017
©2017, Canadian Tax Foundation