Canada

Canada’s laws allow Uber, Lyft to avoid paying as much as $135M a year in taxes, says advocacy group

Ride-hailing giants Uber and Lyft could be avoiding up to $135 million in Canadian taxes each year by classifying their drivers as contract workers instead of employees and using other legal tactics to reduce their financial obligations, according to a new report.

The report, which was published by the progressive non-profit advocacy group Canadians for Tax Fairness (C4TF) and shared exclusively with the Star ahead of its release Monday, concluded it’s impossible to know for certain how much the companies pay because of a lack of transparency in the Canadian tax system.

But using publicly available data, the organization estimates the two companies avoid up to $81 million in payroll taxes as a result of their controversial decision to categorize drivers as independent contractors.

Additionally, C4TF estimates the firms’ federal and provincial corporate income tax obligations total about $54 million each year, but it’s not clear how much of that amount they pay, if any, because companies operating internationally are not required to publicly report earnings or tax payments on a country-by-country basis, allowing them to shift profits around the world to lessen their tax burden.

C4TF claims the ride-hailing companies’ tax strategy amounts to a government subsidy that allows them to charge cheap fares that undercut more sustainable options like public transit. The group hasn’t accused Uber or Lyft of any illegal behaviour, but instead alleges they take advantage of loopholes in Canada’s regulatory framework.

Uber and Lyft deny the allegations in the report.

Both companies declined to say how much they pay in Canadian taxes each year. An official for the federal Department of Finance also wouldn’t say how much Uber and Lyft pay, citing confidentiality provisions in tax legislation.

“The companies are masters of corporate tax avoidance,” the C4TF report states.

“Uber and Lyft depend entirely on publicly funded infrastructure to generate their revenue, and they should unquestionably pay their fair share of taxes to help fund it. Instead, the Canadian public is subsidizing a business model that leaves drivers poorly paid with no benefits, while undermining public transit, and increasing congestion and (greenhouse gas) emissions.”

In a statement Laura Miller, head of public policy and communications for Uber Canada, said the company “is compliant with all Canadian tax laws.”

She said Uber “remits all the tax it’s required to pay under Canadian law” and contributes millions of dollars in municipal ride-hailing fees that cities use to pay for administration of the industry, transit and other initiatives.

On July 1, Uber Canada shifted its base of operations from the Netherlands to Canada. The company said the change means it will pay more in Canadian tax because it will start remitting sales tax on the fees drivers and merchants pay to use its app.

In a statement, Lyft called the allegations in the C4TF report “deeply misleading or flat-out wrong.”

“Lyft is proud to be a tax-registered company in Canada and is in good standing with the Canadian tax authorities. We file all of our taxes in Canada,” the company said.

The issue at the heart of C4TF’s claims — the classification of ride-hailing drivers as independent contractors — has been contentious since Uber and Lyft started disrupting the transportation industry about a decade ago.

Labour advocates have criticized the designation because as contractors, app-based workers aren’t entitled to basic protections like minimum wage and the right to unionize. The classification has faced legal challenges around the world, including in Canada.

Citing internal surveys, Uber and Lyft argue most of their drivers benefit from “flexible” work arrangements and don’t want to be classified as employees. In March, Uber Canada introduced a proposal that would extend some benefits and protections to workers while maintaining their contractor status.

The contractor classification means the companies aren’t required to deduct payroll taxes like employment insurance and Canada Pension Plan payments from drivers’ earnings. C4TF alleges that’s key to allowing Uber and Lyft to charge customers low fares that draw riders away from public transit.

A report released in February by RideFair, a group pushing for stronger regulations for ride-hailing companies, estimated the TTC lost $74 million in fare revenue to Uber and Lyft in 2019.

The companies disputed the report, and Uber says its operations promote sustainable transportation. A recent report commissioned by the company concluded almost two-thirds of users said the availability of ride-hailing services was an important factor in their decision to not own a private vehicle.

The degree to which Uber and Lyft eat away public transportation use could be critical in the coming years as Canadian transit operators seek to rebuild ridership and revenue streams devastated by COVID-19.

D.T. Cochrane, policy researcher at C4TF, said while his group believes ride-hailing companies’ operations are harmful to society, its main criticism is aimed at Canadian authorities.

Corporations “are always looking to improve their bottom line” and “will seek to sidestep taxes whenever they think they can get away with it. So it’s up to the government to make sure that they can’t,” he said.

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The C4TF report recommends the federal government require Uber, Lyft and other multinationals to publicly disclose their revenues, profits and taxes on a country-by-country basis. It also says ride-hailing companies should be regulated as transportation providers and their workers classified as employees.

But while the classification issue is being litigated, C4TF says the firms should be subject to the new Digital Services Tax the Canadian federal government has said it will introduce in January. The group projects the proposed three-per-cent DST would require Uber and Lyft to pay about $60 million a year.

The Department of Finance official said the federal government is “committed to ensuring that businesses in all sectors, including digital corporations, pay their fair share” and “there is no specific exemption” for Uber or Lyft in the proposed DST.

Ben Spurr is a Toronto-based reporter covering transportation for the Star. Reach him by email at [email protected] or follow him on Twitter: @BenSpurr




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