With the personal returns deadline approaching, expert reminds clients about supplementary income
Cruising around making extra money as an Uber driver? Don’t be fooled into thinking it’s a hobby or a reduction of expenses - the Canada Revenue Agency wants to know.
Bruce Ball, vice president tax for CPA Canada, said that for people making extra money through Uber or Airbnb, the fact these two business models are relatively new means the tax implications can often be forgotten.
With the CRA deadline for personal income returns fast-approaching on April 30, Ball said that now is the perfect time for a reminder.
He said: “They are kind of new things and people might not realise that when you do something to make money you are generally subject to tax.
“Both of these activities have gone beyond car-pooling, for example, which is sharing expenses. You’ve gone beyond that and now you’re trying to actually make money. That’s when you have to worry about tax. Even if you do it part-time, it’s still a business and subject to tax. Airbnb would be rental income but it’s the same idea.”
He added that Uber drivers have to record the money they receive and segment it to determine the extent they used the car for business or personal, and then pro rata the expenses to see if you had a profit or not.
He said advisors must make it crystal clear that making money through Uber or Airbnb is a commercial activity.
He said: “Make sure clients understand they have to report it. In the Uber case, record-keeping is going to be crucial. They’ll need to keep complete records of their car expenses because they need all of that to know how much they drove for Uber and how much of that was for personal use.”
He added: “The other thing is the Canada Revenue Agency is a lot more likely to audit business income as well so they need to keep the receipts and have a good record of business versus personal in case the CRA asks for it.”
Ball said that while the Uber and Airbnb misconception is down to their emergence, the age-old issue of people simply not filing their returns needs to be highlighted. People may be put off by the fear of being taxed more but, he said, often not filing a return works to the client's benefit.
He said: “If it were an advisor talking to a client, if they have reason to believe they are not filing for adult children, for example, who don’t have income or they are missing some things, just remind them that filing a tax return can be a good thing. If you are not earning enough to be taxed – you don’t have to pay.
“You may get RRSP room for the future. For example, if they have a summer job and it isn’t actually enough income to pay tax, they can still accumulate RRSP room.
“If their child is at college or university, it’s often better to transfer the credit to a parent. One common thing is you can transfer it to a parent, they claim it and you can figure out how much it is worth to the parent. They can then give it back to the student rather than have the student actually wait until they can get a credit for themselves.”