If you are a student working for a rideshare company, food delivery company, as a private tutor, freelancer, involved with internet business activities, or have another job that indicates you work for yourself, you are considered self-employed.
As a result, you will earn self-employment income under the rules and regulations outlined by the CRA. If you are a self-employed independent contractor, it is important to note that taxes will not be withheld by the company, instead, you will have to report your income and deduct expenses incurred which will result in taxable income. Similarly, if you have a sole proprietorship you will have to keep track of your income and expenses to report. This is different from when you work as an employee of a company, as that company deducts taxes on your behalf. This means that it is the individual’s responsibility to pay self-employment income taxes by the tax deadline of April 30. Your tax return is not due until June 15, but any tax must be paid by April 30.
In addition to the usual tax forms, it is required that self-employed income be reported on Form T2125, Statement of Business or Professional Activities. Uber, for example, provides a “Uber Tax Summary” which consists of your total earnings (gross amount), sales tax you have collected for each trip, sales tax paid on Uber fees and some potential business expenses such as service fee, booking fee, mileage, etc. These summaries will be provided on a monthly and annual basis by Uber. Other expenses which can be deducted from income include vehicle insurance, cell phone costs, maintenance expenses, tolls or parking costs and tax depreciation (Capital Cost Allowance) on your vehicle. Please note that deductible expenses help lower your tax owing, so be sure to claim all eligible costs.
Also, depending on the amount and nature of the type of product or service (i.e., type of supply) you provide, you might also need to register for a GST/HST account if you are self-employed. For more information to determine what GST/HST rate to charge as a self-employed individual, please refer to CRA’s guidance.
As a GST/HST registrant, you will be required to collect and remit the sales tax to the CRA. For example, as an Uber rideshare driver, you’re responsible to collect, remit and file your HST return. You will need to register for GST/HST which will provide you with a GST/HST account number which needs to be shared with Uber within 30 days of your first ride. GST/HST amounts collected will be shown on your weekly earnings statement as well as on your monthly and annual tax summaries. These amounts will have to be remitted to the CRA on a quarterly or annually basis. Lastly, you will need to file a separate GST/HST return which will require you to calculate your net tax which is the difference between GST/HST collected from customers and GST/HST paid on expenses related to the ridesharing business (input tax credits). If you have collected more GST/HST from customers than you have paid on expenses, you will have a GST/HST tax payable. If you have paid more GST/HST on expenses related to the ridesharing activities, you will have a GST/HST tax refund.
Filing a tax return as a self-employed individual can be complicated so it is recommended that you reach out to a local tax professional to assist you with the different components.
- Jia Lei, Young Tax Professional