Canada seeks to end Uber's tax advantage over taxi companies
reuters.com
reuters.com
The purpose of the exemption was never to let a mega-corporation take the exemption of each employee, multiply it by the number of employees, and pretend that they don't need to pay tax.
What next? A grocery store taking the $30,000 exemption for each employee working for it? A law firm taking a $30,000 exemption for each legal aide working on a case?
This is Canada. I'm sure that's how Uber would like to see it but not everybody agrees:
http://business.financialpost.com/news/transportation/uber-d...
It would wreck the cab industry if dispatch companies (to which cabs are exclusively tied) had to make all their drivers employees.
Besides, even without innovation, cabs/ubers can just cost more, or cab company owners (I don't mean the drivers) can just make less profit.
edit: I also think that welfare and healthcare should come from the government and not from companies, but I just don't understand how being profitable enough to pay people decent wages is a political problem at all. Nothing political about this - it just requires making a simple decision to divert some of your profit into something other than shareholder pockets.
Yes. The rocket thing is the current apogee of a (remarkably phallic) ego war between billionaires. Most automation that would truly benefit society is boring, low-margin work. There's no massive ROI in scrubbing out a toilet or mopping a floor, so we continue to pay humans survival wages to do that kind of miserable work. For these Industry Titans, a $2.5 million hypercar just doesn't do it anymore. Robert Mercer's 200-foot, 4-story yacht with an elevator is okay, but Elon Musk's rocket shooting other people off to die on Mars (or likely partway) is a real dominance display.
Yes, one is a technical problem, the other is a political problem. The first one we just solve by being smarter, the second one...has anyone ever successfully managed to treat private drivers as employees rather than independents?
In my opinion, basic benefits should be provided to all citizens, not just the ones with the correct employment status. Note that in Canada, it's already like this, so this isn't what we are arguing about in this context. Contracting work is much easier to stomach in Canada because retirement and health is provided by the state rather than the company (and if the USA did the same thing, it would really make labor markets much more liquid).
At the end of the day, might as well turn this into a technical problem by getting rid of the driver...oh.
The intent of the law is pretty clear - serious businesses (That do more then $30,000/year in sales) are expected to pay taxes. Small ones are not - because of the small amount of tax revenue, and the high burden of compliance for individuals.
The cost of compliance for Uber is trivial. It's a bloody app, for Pete's sakes.
I'm a software development contractor myself. But I don't handle the revenue of the company or companies I work for, from their customers. So the GST on that revenue is none of my business at all.
Similarly, a cab company could operate such that cabbies are contractors, but the company collects the fares, and then pays the cabbies out of that under whatever compensation terms are between the cabbies and the company.
In that case, since the company is not a small operator meeting the 30K-and-under rules, it has to collect and remit GST.
Some of the drivers might meet the rule themselves. They bill the company with their invoices and do their own GST accounting. Those that work a lot charge the GST. Some that work only little can get away without it. Either way, that makes no difference to the cab company. When that company is charged GST by a contractor, it can probably subtract that from the GST it collects and remits as a "GST input credit". When it isn't charged GST, it doesn't subtract.
Either way, the company can get the contractors "GST free". This is fair when we consider that a company with permanent employees also gets them "GST free".
The "GST cheating" in Uber is probably that the drivers themselves are not just considered contractors, but entire one-person transportation businesses which collect revenue directly from the riders. Effectively, each Uber driver is an entire one-person cab company operating one cab. Uber is then their supplier: they pay something to Uber for the services of being in the Uber network.
If there are large numbers of part-time Uber drivers that meet the 30K exemption, then that's a big loss of potential GST revenue to CCRA, compared to if those drivers were contractors who get paid by a cab company that itself collects fares with GST (even with the input credits they may get). When a driver meets the exemption, the CCRA gets no GST whatsoever from that piece of the pie: not even the difference between GST on some sales, and input credits with respect to the driver associated with those sales
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/txlmsn/menu-e...
I do think it was pretty unclear though if you go up the reply chain. :)
In turn, drivers who earn > $30k should provide their HST number to Uber, and Uber should be billed HST in remittances.
In turn, drivers can write off HST paid on all business-related expenses.
Yay, Value Added Taxes.
> When you buy a book from a seller on Amazon, who sets the price?
The answer is that the seller always sets the price. Sometimes the seller is Amazon itself, and other times it's not.
Consumer buy ride services from Uber.
If Uber switches to (self driving) cars that Uber owns itself, how does that change the sales tax model? The product is still essentially the same, the consumer still pays Uber, tax shouldn't change here. The backend shouldn't dictate whether sales tax is applicable here.
Etsy is a general marketplace and should handle sales tax/GST just like Amazon does. Which it does.
The concept of Uber being a marketplace is utterly ridiculous.
Can a software contractor code in any programming language and on and operating system, whether or not the client uses them? Can he or she flout the HR policies, while on site?
A software contractor can indeed work in whatever they want, but the contract may stipulate some things about that and not doing so would be breach of contract. Obviously a contractor is bound to the terms of their contract.
In this case the analogy is the contractor using their own computer and software to manage their work process, not terms of what the work product is.
Likewise, if they're not an employee and their contract doesn't stipulate anything about behaviour on site than I would expect them to follow the law rather than policies they never agreed to... Is everyone entering a workplace subject to HR rules they've never even seen?
For reference, the things that I was vaguely referring to are described in detail here: http://www.cra-arc.gc.ca/E/pub/tg/rc4110/rc4110-e.html#facto...
I find that kind of argumentation silly. They brought to the taxi industry, what is common in other industries, like construction, tech, etc. Stated differently, Uber has been able to provide a competitive service by legally structuring themselves in a way maximizes return for the themselves, for the driver, but still keeps costs low client due to say structuring.
Is your argument that you wish they had structured it differently so they were forced to pay more taxes? If that was the case then the drivers would be making a less, and the passengers would pay a more to cover the costs of the GST, and I don't see the point in that.
If taxi companies want to level the playing field, why don't structure themselves in more innovative ways like Uber did instead of forcing others to pay more taxes?
The government is doing exactly the right thing in changing the law so that irrelevant differences in corporate structure don't affect the tax paid.
In fact, they haven't. They're taking a huge loss on subsidies to the fares.
No. A loophole is when a given law is exploited in a way that was not intended by the people who wrote it, usually by resorting to small technicalities in the law itself, or by referring to other, related laws.
In this particular case, a law that was intended to benefit small businesses is being exploited by a mega corp. Hence, loophole.
[To be clear: I've never used Uber nor would I generally consider it over my local 'trolley' in the ~35K population town in which I live.]
https://en.wikipedia.org/wiki/Dial-a-truck
These systems morphed into what is called a 'load board,' and Landstar operated what was more of a network of independent trucking brokers with their own shared/ private load board.
In economics and particularly in industrial organization, market power is the ability of a firm to profitably raise the market price of a good or service over marginal cost. In perfectly competitive markets, market participants have no market power.
I'm pretty sure I don't have the exact facts on what Uber's operating agreement with drivers is, but I always thought a given driver could choose to only drive during surge pricing, no? We always tried to manage our drivers for an elastic supply of capacity (much like an ad exchange). Otherwise, we'd be overwhelmed like the under-covered transport problem in Austin during SXSW (I believe a result of the lack of Uber availability). Uber's radio adverts explicitly state that it's "drive when you want for extra money," and if that is not what they actually offer then Lyft has a huge opportunity to acquire/retain more/better drivers and maintain a rapid ability to scale for capacity.
I am of the belief that Uber presents a unique opportunity to rethink the whole structure of unions in the US (I don't actually care if Canada bans Uber altogether, for example, I am more interested in the concepts themselves), and maybe a total rethink about how to organize labor.
I would have interest in building a commercial platform to help labor organize and coordinate themselves better (that they own) in the modern world. I think it would look like a gated digital community with microblogging, discussion, and voting functions.
The driver does not raise the price, Uber does. Uber has the market power here.
>I'm pretty sure I don't have the exact facts on what Uber's operating agreement with drivers is, but I always thought a given driver could choose to only drive during surge pricing, no?
Perhaps, I should have been more direct. A contractor should be able to set and negotiate rates. If they can't do that I think they're an employee. For example, if I need to hire a general contractor for a construction job I can shop around, compare rates, pick the best one AND haggle with them if need be. If I need to hire an Uber, I have no "haggle-power" OR ability to shop around because Uber sets the rate. None of the contractors are competing against each other because Uber controls the marketplace and this is where I think the contractor designation breaks down. If you tightly control the market, the people in it are employees, if the market is more free, the people in it are probably contractors.
>I am of the belief that Uber presents a unique opportunity to rethink the whole structure of unions in the US, and maybe a total rethink about how to organize labor. I would have interest in building a commercial platform to help labor organize and coordinate themselves better (that they own) in the modern world. I think it would look like a gated digital community with microblogging, discussion, and voting functions.
This sounds interesting but personally I'm of the mind that poor labor organization is a political problem. How would your app help workers beyond just a place to communicate?
Uber also doesn't control the market. There is also Lyft and any other competitor is welcome to start and offer better rates for the driver. Or even offer variable pricing where every driver can set their own rates and consumers can pick the lowest bidder. Drivers have the power to switch providers or use multiple simultaneously.
Just because Uber doesn't adhere to our common social contract doesn't mean they don't have to. Unethical behavior is not justification for that same behavior.
I'm reasonably certain the tax code has no regulation that says you must be classed a contractor if you meet certain criteria.
There are a certain number of criteria for employees vs contractors, based on whether training/equipment is provided, price setting, ability to turn down jobs, etc etc.
If you're classified as an employee, there are a bunch of things you have to do, such as collect GST, deal with health care, sick days, paternity leave, taxes, etc.
Uber is making the case that its drivers are contractors, since they set their own hours and purchase and maintain all their own equipment. It's a plausible argument, and that's something for the courts to sort out.
Just saying that they need to collect GST because the drivers are employees is begging the question.
If Uber drivers are classified as employees, what's next? Upwork and eLance workers classified as employees?
If the good or service is being provided by a non-taxi contractor who makes less than 30k a year, then you don't have to collect the GST and the tax doesn't cover that.
If the good or service is being provided by Uber, a non-contractor who makes over 30k a year, then you have to pay the tax.
What we're debating here is who provides the service and their legal status.
There's a certain amount of circular reasoning inherent here, because a government ministry made a declaration. It's not just an objective observation of reality, it's a declaration of what that reality will be henceforth.
Was it a good decision? In my opinion yes, because it better reflects the original intent of this particular tax. Anyone trading on the brand-name of "Uber" and using Uber's infrastructure is not a small supplier (who has to build and market their own brand and build their own infrastructure). And they are clearly supplying a good or service, which was my point expressed in embryonic form above, so they can go ahead and collect the tax.
My point is that Uber did not have to pay taxes, and their obligation to collect taxes was unclear. Under the new law they have the collect taxes. Under the old law, it was plausible that they didn't.
The main takeaway is that most aspects of the legal system, including definitions for commonly accepted terms, are not actually clear.
Especially your argument on intents of taxes. I don't believe that brand-name and infrastructure alone make an employee out of an independent contractor. Also, based on your brandname and infrastructure arguement, should people who sell handicrafts on Etsy or Amazon be classified as employees of Amazon and be forced to pay GST on all sales?
Also, they wouldn't pay GST; they would collect it from customers and pass it on to the government.
The question is what entity provides the service? In name, it's Uber. Do you take a Joe Johnson? Or do you take an Uber?
The point of contact is Uber also. You contact Uber for a ride, not Joe Johnson.
What entity sets the price? What entity collects the money? Uber.
There are some differences with Amazon and Etsy, but in general I think for this purpose if you partner up with a big company, you are not necessarily a small supplier anymore.
Basically, the taxation law is unclear, because you could easily argue that the service is purchased in the United States, where the Uber servers and the internet connections are. In that case, we're talking about Uber not really being a Canadian company, just that it has subcontractors working in Canada, making it exempt from taxes.
It seems like a lot of people have already decided whether or not Uber should be paying taxes, and now are retroactively applying logic to justify their original decision.
I could support that view, as long as they then pay taxes on that income in the US. I don't personally like the idea of shifting the money like that; I think eliminating such tactics would do a lot to fix tax havens. But at the same time I also recognize it as a pretty common and typically legal tactic for tax purposes.
The EU, for instance, closed that hole with the law that VAT taxes will be paid based on the customer's location. If such a law existed in Canada, then Uber wouldn't be able to argue that the purchase was made in the US.
> It seems like a lot of people have already decided whether or not Uber should be paying taxes, and now are retroactively applying logic to justify their original decision.
I agree, though I hope you weren't applying that to me. I was taking Uber's view as a given, but to me it still seemed that taxes would be owed for services rendered. Just that it would be services rendered to the drivers, not to the riders.
I download the Uber app, Uber finds me a ride, Uber sets the price, Uber charges me, and I pay Uber. Uber should be collecting GST/sales tax. I don't understand how else you could look at it!
Uber is essentially doing the same thing here in Australia and the courts are getting involved to make a ruling.
The consumer is paying Uber. Whether Uber uses employees, contractors, clockwork automatons or aliens to provide their service is irrelevant.
"I call manpower, manpower sets the price, manpower charges me, and I pay manpower!"
Except in that case temp agencies are clearly employing contractors, and thus don't have to pay GST.
Not everything is black and white. If they were, the government would easily have been able to block their actions. Right now they're trying to figure out what's going on and charge them appropriately.
This is under dispute, and I think you're going to find that governments around the world disagree with you.
When this sentence is used by the well-connected elite of the best-funded region in the world, somewhere, the world's tiniest orchestra plays a sad tune on the world's tiniest instruments.
Seriously, guys ~~
If you say you'll build me a website for $100, and I in turn contract that out to some guy in India, I'm still required to charge you $100 + $5 GST. The fact that I didn't use an employee to provide the service is of no issue.
It's right to close the loophole that really should never have existed in the first place, if not for industry lobbyists.
Uber is like a builder who hires contractors. The builder's revenue is >30 k CAD therefore they need to collect and remit GST.
If some of the contractors were to make less than 30 k per year, then they don't need to charge GST, regardless of who the builder is or the size of the projects they work on.
The "end user", the person paying for the house, deals with the builder, hence pays GST.
I am an Uber/Lyft user and my life has been drastically improved!
Contractors are considered employees in some ways and not in others. This is mainly under labor ("labour", here in Canada) law which is there to protect workers from being exploited by being reclassified as contractors. Like you can't ask people to work in shit conditions just because they are contractors, and such, or deny them a lunch break.
Consumers contract with Uber, and pay Uber. So from what I can see, Uber should be collecting, for itself.
Either way, collecting GST on a sale is the norm in Canada, regardless of what happens on the back end.
> So from what I can see, Uber should be collecting, for itself.
My comment is not about remitting, it's about collection. Jesus.
It's not at all the same thing as you previously suggested.
The entire point of this conversation here is that $10 + 5 cents gst is a price increase if you weren't bothering to charge a tax at all.
By "collecting, for itself" I meant "for itself as the seller" rather than "collecting on behalf of its contractors"
http://www.newswire.ca/news-releases/statement-from-uber-can...
One interesting note about the press release to the Canadian newswire service, it highlights that Uber was confounded by Canadian Garret Camp.
This is set to go live on July 1st so I guess you can watch the data from that point on to see if it has any effect.
> The budget statement estimates the change will raise C$3 million in new revenue in the 2017 budget year, rising to C$5 million in the next few years.
So this isn't really about raising money as $3 million is figuratively a rounding error.
s/confounded/co-founded/cg
Sorry for the nit-pick, but in this case the word confounded had me genuinely confused about what this special interest group, Canadian Garret Camp, is (are they angel investors? some sort of VC incubator? a front-group for taxi companies?), and why they were lobbying for removing Uber's GST exemption.
Instead of making it harder to be an Uber/Lyft to match Taxis, why not make it easier to be a taxi? Driving someone around shouldn't be so complicated.
Regulation, when necessary, is good... but most of what I see around taxi regulation is just money gouging on the part of the state.
Personal safety gets involved, big time, when driving someone around.
If I give you a ride to work, for free --- then give you a ride to work, but you pay me, what is the functional difference requiring more regulation on the second part?
Is your safety affected any different? Aside from the basic protections built in to any business when it comes to collecting money, etc, what extra rules need to be in place.
From a purely pragmatic standpoint, what is different about the experience that requires all the extra crap?
For example, in many cities where they were losing the legal fight, Uber offered free rides... and were legally allowed to do so, because they weren't charging the customer. Explain to me what was different in that scenario that made it any safer for the passengers?
In the first instance, both parties can refuse, and can drive in any way they want. One-off rides (or paying for part of the gas in a carpool) aren't much of a worry. This is basically as safe as driving yourself somewhere. Of course, they could be a really bad driver with minimal insurance, so hopefully nothing bad happens. In addition, in these situations, you are usually on a friendly basis with the person - minimally a coworker.
Your safety is different when you start to ride with someone that does it for a living. You don't know the person, so you are trusting they know what they are doing and can drive in a way that is safe for you. The more folks drive, the more likely they are to be in an accident (this is why insurance increases with your commute). Minimally, they need to know how to combat this. I'd prefer them to have a more comprehensive driving test, including things like passenger safety and minimal regulations on driving record/background check. Unlike your friend, I'm pretty sure a taxi service has to have adequate insurance in case of an accident. Many places also have policies about pricing because of shady pricing policies in the past.
The more you ride would be what affected passenger safety.
I used to think something similar, but the truth is that the problem with professional driving isn't one of experience, but things like driver fatigue [1]. All things being equal in driving skill, the "normal" driver generally drives safer than the professional.
[1]https://www.transportation.gov/fastlane/why-we-care-about-tr...
Laws will not weed out irresponsible people.
The key points here arent that there is a potential for danger. The point is that the extra laws (which just so happen to come with a price and generate revenue for the state) don't prevent those problems.
They could pass a law requiring that drivers drive less than 40 hours a week. Does that really fix anything? Is there any way to determine that the driver who drove 10 hours this week didnt do so after staying awake for 3 days straight?
Until someone gets driven 60 miles out of town on the way to the airport and left there unless they have a "special" fee...
It's almost as if these regulations were put in place for a reason.
Taking someone somewhere against their will is already illegal, which of these extra laws (and taxes) prevent that?
The result would be the same in either case - the driver would be held accountable for, basically, kidnapping and extortion, and you'll be left either short more money or stranded 60 miles out of town. A regulation in place isnt going to prevent someone from doing that. Regulations would have no impact on that case.
For the same reason that regulations help in all sorts of areas; you pre-vet the people authorized to do the service to reduce the likelihood of this occurring. It's exactly the same as regulating doctors, lawyers, financial planners, truck drivers, teachers, daycare workers etc, etc, etc.
The NZTA are prosecuting because it turns out that, surprise surprise, Uber are hiring drivers with serious criminal records or who are medically unsafe to drive.
The Canadian government realized it could increase taxes by appealing to moral outrage, with terms lime "tax advantage" and "loophole". End the tax advantage by lowering taxes and reducing the size of government? Out of the question.
In addition, my understanding (not a tax/law person) is that the 30k$ would be for the whole fare, not the driver's cut.
GST rate is 5%... But provincial sales tax could apply, at least in provinces where there is HST (Harmonized Sales Tax, administered by fed gov, divided with province.) HST varies from 13% to 15%. I wonder if we'll see provinces going after the drivers for back taxes. Revenue Quebec is notoriously aggressive in going after people for sales tax.
Sounds like Uber needs to update their app.
> I wonder if we'll see provinces going after the drivers for back taxes.
I'm sure Uber will do the responsible thing, stand by its drivers, and make them whole in the case that they are billed for back-taxes.
Particularly because Uber-like apps are becoming important to public transportation infrastructure. Additionally, taxi revenue coming from tourism remains in the hands of Canadian taxi companies as opposed to Uber resulting in a net positive flow of money into the country.
http://www.itbusiness.ca/news/canadian-alternative-to-uber-l...
Sadly it doesn't address any of the problems with cabs in Toronto.
1. Cabs won't take credit cards by claiming "the machine is broken" when it's not, presumably so that they can avoid reporting tips or fees, or they might just skim your card.
2. Cabs are too expensive.
3. Cabs might not even take you if they figure the ride isn't worth it.
This app doesn't allow you to pay, so doesn't help 1. It actually make 2 worse by charging you $2 just to "hail" a cab with it. I mean, seriously? And it doesn't help with 3 either.
I find more cabs don't use that excuse now since Uber has been breathing down their necks. Also, since you mention Toronto, there's the Beck Taxi iOS app. With it you can pick the pickup location, destination, hop in the cab, and when leaving the driver declares that the trip is over which charges one's PayPal account. It's not as cheap but if someone wants to use cabs over Uber based on principle then there other convenient options.
It's amazing and would be so illegal on so many levels in Canada (where I spend $1000/mo on transportation).
They don't even always have a price advantage anymore, especially if there's a surge. I needed a cab from Chicago Midway to my hotel last night, Uber's upfront price was $48 (and an eight minute wait), a regular taxi was $40 (including 15% tip) and no wait. I took the latter.
1) Their app 2) The reliability of getting car with them vs. waiting for a cab. 3) Their vehicles are much, much, much nicer than cabs in my area. 4) The purchase experience.
Have you ever asked yourself how they do that? It's not like taxi drivers are fabulously wealthy.
Like you said, cab drivers (and probably cab company owners) aren't exactly fatcats. Meanwhile what's Travis Kalanick's net worth? How much are they paying top engineers at Uber?
Don't get me wrong, there's definitely corruption and protectionism in the existing taxi industry, but I fail to see how the low $5-7 fares are anywhere near sustainable. Is the revenue from surge pricing enough to offset the current discount?
Aren't cab drivers in major cities dealing with the purchase or lease of million dollar cab medallions? I believe that could factor into higher prices for consumers.
Lower fares mean more revenue for drivers and Uber and thus more income taxes collected. Removing taxes from goods, means lower prices which means you sell more and then generate more tax revenue. Laffer Curve 101.
Because consumption taxes are the most efficient form of taxation. You want a private chauffeur? Pay up.
>Lower fares mean more revenue for drivers and Uber
Huh? Only if the driver is working a lot harder.
Uber should fail on both of those counts, but instead the law is changing to end that exemption. This appears unfortunate to me as we could use continued innovation in the ride sharing space.
https://news.fastcompany.com/investors-are-paying-2-billion-...
That's the story their PR spins. Luckily they don't make the laws.
You think this idea of, "He's not my employee, he's a contractor!" as a way to avoid employer obligations is new? That's a laugh, and it's the reason these laws exist.
Seems like the exact definition of a contractor to me. I don't know how else you could define it really.
If they are not employees, drivers are obliged to collect GST from Uber for their services if they earn more than $30K. If Uber re-sells that service, they are also obliged to collect GST from the end user. They can claim an input tax credit on the contractor's GST to offset. This is normal business operation in Canada, and one of the main reasons the HST was so popular - it moved all the multiple people charging and remitting taxes to one spot - the end sale.
If Uber's contractors are determined to be employees, that's a major issue for them, because at that point they have a ton of CPP and EI to pay that they have not been doing.
Really, they don't have much of an argument here either way. There is no real reason they should be tax exempt.
Who does?
And not all employees of every company are salaried. Some work on commission or other models.
To your - bad - analogy: If MS was selling templates created in word by you to a marketplace, you can bet that GST would be paid on them by the consumer to MS.
Consumer pays GST to MS. MS pays GST to a GST collecting template provider. MS and template provider both pay GST to government, but MS gets an input tax credit for GST paid to template provider so that government doesn't double dip.
This is what uber should be doing with their drivers but they prefer to have prices 5-15% lower than their competition by applying their own legal interpretation to Canada's tax laws.
Now, the major issue here is that if the app creator is making $30K+, it is THEIR responsibility to charge GST, which means that if there is no mechanism to charge in addition to the price, it's automatically inclusive. The CRA doesn't care how you collect the tax you owe, they just care that you pay it.
For a vast majority of app creators, $30K probably is a target they are on the lower side of, but I'd imagine people making a living on the apple store, the GST is coming out of their revenue directly. At least, that's how CRA would look at it.
Now that being said, CRA might be treating this entire industry as an undefined gray area for the time being, particularly since they are getting the GST on the final sale by apple, but I don't think that will last long.