Ride-hailing giants Uber and Lyft could avoid up to $ 135 million in Canadian taxes each year by classifying their drivers as contract workers rather than employees and using other legal tactics to reduce their financial obligations, a new report said.
Published by progressive nonprofit advocacy group Canadians for Tax Fairness (C4TF) and shared exclusively with the star prior to its release on Monday, the report concluded that the lack of transparency in Canada’s tax system makes it impossible to say with certainty how much companies are paying.
However, using publicly available data, the organization estimates the two companies will avoid up to $ 81 million in payroll taxes due to their controversial decision to classify drivers as independent contractors.
In addition, C4TF estimates corporate tax obligations at the federal and provincial levels to be approximately $ 54 million a year, but it is not clear how much, if any, of that amount they are paying as international companies are not required to publicly report their income or tax payments on a country basis so that they can make profits within the world, to reduce their tax burden.
C4TF claims that the ridesharing tax strategy amounts to a government subsidy that allows them to charge cheap fares that undercut more sustainable options like local public transport. The group did not accuse Uber or Lyft of illegal behavior, instead claiming that they were exploiting loopholes in Canada’s regulatory framework.
Uber and Lyft deny the allegations in the report.
Both companies declined to disclose how much they pay in Canadian taxes each year. A federal Treasury official wouldn’t say how much Uber and Lyft are paying either, citing confidentiality clauses in tax law.
“The companies are masters of corporate tax avoidance,” says the C4TF report.
“Uber and Lyft depend entirely on publicly funded infrastructure for their revenue, and they should no doubt be paying their fair share of taxes to fund them. Instead, the Canadian public is subsidizing a business model that leaves poorly paid drivers with no benefits, while undermining public transport and increasing congestion and (greenhouse gas) emissions. “
In a statement, Laura Miller, director of public order and communications at Uber Canada, said the company “complies with all Canadian tax laws”.
She said Uber “remits any taxes it must pay under Canadian law,” contributing millions of dollars in communal ridesharing, which cities use to pay for industrial management, local transportation, and other initiatives.
On July 1, Uber Canada relocated its base of operations from the Netherlands to Canada. The company said the change means it will pay more Canadian taxes as it will reimburse sales tax on the fees drivers and dealers pay for using its app.
In a statement, Lyft called the allegations in the C4TF report “deeply misleading or absolutely false.”
“Lyft is proud to be a Canadian Taxable Company and has a good reputation with the Canadian tax authorities. We file all of our taxes in Canada, ”the company said.
The core theme of C4TF’s claims – classifying ride-hailing drivers as independent contractors – has been controversial since Uber and Lyft began disrupting the transportation industry about a decade ago.
Employee representatives have criticized the designation because app-based workers as contractors are not entitled to basic protection such as minimum wages and the right to unionize. The classification has faced legal challenges around the world, including Canada.
Citing internal surveys, Uber and Lyft argue that most of their drivers benefit from “flexible” work arrangements and do not want to be classified as employees. In March, Uber Canada tabled a proposal that would give workers some benefits and protection while maintaining their contractor status.
Being classified as a contractor means companies are not required to deduct wage taxes such as unemployment insurance and Canadian pension plan payments from drivers’ incomes. C4TF claims that this is key to enabling Uber and Lyft to charge their customers low fares that discourage passengers from using public transit.
A report released in February by RideFair, a group pushing for stricter rules on ridesharing, estimates the TTC lost $ 74 million in fare revenue to Uber and Lyft in 2019.
The companies denied the report, and Uber says its activities promote sustainable transportation. A recent report commissioned by the company concluded that nearly two-thirds of users said the availability of ride-hailing services was a major factor in their decision not to own a private vehicle.
The extent to which Uber and Lyft drain public transportation usage could be critical in the years to come as Canadian transportation companies seek to rebuild the ridership and revenue streams destroyed by COVID-19.
DT Cochrane, policy researcher at C4TF, said that while his group believes that ride operator businesses are detrimental to society, their main criticism is of the Canadian authorities.
Companies “always strive to improve their bottom line” and “will try to avoid taxes whenever they think they can get away with it.” So it’s up to the government to make sure they can’t, ”he said.
The C4TF report recommends that the federal government ask Uber, Lyft and other multinational corporations to disclose their revenues, profits and taxes on a country basis. It also states that ridesharing companies should be regulated as transport companies and that their workers should be classified as employees.
But while the classification problem is being litigated, C4TF says companies should be subject to the new Digital Services Tax that the Canadian federal government announced it would introduce in January. The group estimates that Uber and Lyft would have to pay about $ 60 million a year for the proposed three percent daylight saving time.
The Treasury official said the federal government was “committed to ensuring that businesses in all sectors, including digital businesses, are paying their fair share” and “there is no specific exception” for Uber or Lyft in the proposed daylight saving time.
Ben Spurr is a Toronto-based reporter who covers transportation for the star. Reach him by email at [email protected] or follow him on Twitter: @BenSpurr