If you drive for apps such as Uber or SkipTheDishes in Canada, managing your taxes might seem intimidating, but with the right approach, it can be very simple. This guide will help you better understand the tax process and avoid headaches during tax season. Knowing how this system works can save you thousands each year through tax deductions.
1. Understanding Your Status as Self-Employed
As a rideshare or courier driver, you are considered a self-employed individual (you are your own boss), meaning you are responsible for reporting your income and expenses to the Canada Revenue Agency (CRA).
2. Tracking Your Income (The easy part)
All earnings from platforms like Uber, Lyft, or others must be reported as business income. This includes:
Ride fares
Tips
Each rideshare company typically provides an annual summary of your earnings, which you should use when filing your taxes.
3. Documenting Your Expenses (Most important)
One of the benefits of being self-employed is your ability to deduct business expenses from your taxable income to keep more of what you earn. Driving for work is expensive, so the CRA has ways to help drivers offset the costs they incur for work. However, their requirements are strict.
There are three things you need to keep track of if you plan on taking advantage of these savings:
A detailed mileage log: Including date, destination, purpose, and kilometers driven for work vs. personal use.
Expense details: Including amount paid, location, name of merchant, description, and GST/HST paid.
Receipts for each expense: Physical copy or images.
Without these, you cannot claim most expenses without risking an audit and end up paying thousands more at the end of the year, even with an accountant. This is why we created RideWiz - to effortlessly track the required details and help you save more at the end of the year.
Some common deductible expenses for rideshare and courier drivers include:
Vehicle expenses: Maintenance, fuel, repairs, insurance, tires, car washes, depreciation, and many more.
Non-vehicle expenses: A portion of your phone bill, subscriptions, supplies, parking and tolls, etc.
Mileage tracking is very important as it is the % of your vehicle expenses you can deduct. For example, if you spend $100 on gas, and you have logs to show you drive your car 80% for work—you can deduct $80 as a business expense.
4. Calculating Your Mileage
To deduct expenses related to driving, you must keep a log of the mileage you drove throughout the year, including business drives with the following information:
Date
Destination
Purpose
Kilometers driven
This log is used to determine what percentage of your vehicle expenses can be deducted.
5. Putting it all together
Now that you have all of your information, you are ready to file your taxes. You will need to fill out a T2125 Statement of Business or Professional Activities, which reports your income, expenses, and how much you drove for work vs. personal use.
This can be done through an accountant, an online service such as Wealthsimple, or by yourself. The key is to have all of your information compiled properly so that the person filing your taxes can submit the maximum deduction—this is why many accountants recommend drivers use an app such as RideWiz.
6. A note on GST/HST Registration and Filing
If your total income exceeds $30,000 in a calendar year, and/or you work as a rideshare driver, you must register for a GST/HST number. This involves:
Charging GST/HST: Add GST/HST to your fares.
Claiming Input Tax Credits: Recovering GST/HST paid on eligible business expenses.
This is crucial as drivers who forget to file the GST/HST collected throughout the year must pay the total amount + interest + penalties. Similar to the T2125, you can use deductions to lower the amount you pay at the end of the year based on the GST/HST you paid through eligible expenses.
Note: For RideWiz users, you can find your eligible GST/HST deduction total in the expense tab of the Driver Tax Summary Report
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By staying organized and informed, you can efficiently manage your taxes and maximize your earnings. Proper tax management can significantly impact your net earnings as a rideshare driver.
For more detailed information, you can visit the Canada Revenue Agency (CRA) website or consult with an accountant. To discover how RideWiz can save you time and $1,000s each year, please visit our Home Page!