As the gig economy continues to thrive across Canada, rideshare platforms like Lyft have become an increasingly popular source of income for many Canadians. Whether you’re driving full-time or using it to supplement your income, understanding the tax implications of your Lyft business is crucial to maximizing your earnings and staying compliant with the Canada Revenue Agency (CRA).
Understanding Your Tax Status as a Lyft Driver
When you drive for Lyft in Canada, you’re considered an independent contractor, not an employee. This distinction is important because it means:
- Lyft doesn’t withhold taxes from your earnings
- You’re responsible for tracking and reporting all your income
- You must register for GST/HST if your rideshare earnings exceed $30,000 in four consecutive calendar quarters
- You can deduct eligible business expenses from your income
As an independent contractor, you’ll report your Lyft income on Form T2125 (Statement of Business or Professional Activities) when filing your annual tax return.
GST/HST Registration Requirements
One of the first tax considerations for Canadian Lyft drivers is whether you need to register for and collect GST/HST. In most provinces, rideshare drivers must register for GST/HST once their worldwide revenue from all sources exceeds $30,000 in four consecutive calendar quarters.
However, in some jurisdictions like Quebec, all rideshare drivers must register for GST/HST (and QST) regardless of their income level. It’s important to check the specific requirements for your province.
Once registered, you’ll need to:
- Collect GST/HST on all fares
- File regular GST/HST returns
- Remit the collected taxes to the CRA
The good news is that as a GST/HST registrant, you can claim input tax credits (ITCs) for the GST/HST paid on your business expenses.
Eligible Tax Deductions for Canadian Lyft Drivers
Now for the part you’ve been waiting for—what expenses can you write off? As a Lyft driver in Canada, you can deduct reasonable business expenses that were incurred to earn income. Here are the major categories of deductible expenses:
1. Vehicle Expenses
Vehicle-related expenses typically form the largest category of deductions for rideshare drivers. These include:
Vehicle Depreciation (Capital Cost Allowance) The CRA allows you to deduct a percentage of your vehicle’s cost over time through the Capital Cost Allowance (CCA). For passenger vehicles, this falls under Class 10 or 10.1, with declining rates of 30% and 15% respectively.
Fuel and Oil All fuel and oil costs related to your Lyft driving are fully deductible based on your business-use percentage.
Insurance Your auto insurance premiums are deductible according to your business-use percentage. If you’ve purchased additional rideshare insurance coverage, this is generally 100% deductible.
License and Registration Fees Annual license renewal fees and vehicle registration costs can be partially deducted based on business use.
Repairs and Maintenance All costs for maintaining your vehicle in good working condition are deductible according to your business-use percentage. This includes:
- Oil changes
- Tire replacements
- Brake service
- Car washes
- General repairs
Lease Payments If you lease your vehicle, you can deduct the business portion of your lease payments, subject to certain limits set by the CRA.
Loan Interest Interest paid on a car loan can be deducted based on your business-use percentage.
Car Washes Keeping your car clean is essential for maintaining high ratings, and these expenses are deductible.
2. Calculating Business Use of Your Vehicle
It’s crucial to track the percentage of time your vehicle is used for business versus personal use. The CRA recommends maintaining a detailed logbook recording:
- Date of travel
- Starting point and destination
- Purpose of the trip
- Kilometers driven
Your business-use percentage is calculated by dividing your business kilometers by your total kilometers driven for the year. This percentage is then applied to most of your vehicle expenses to determine the deductible amount.
3. Home Office Expenses
If you use a portion of your home exclusively for managing your Lyft business, you may be eligible to deduct certain home office expenses, including:
- Rent (proportionate to your workspace)
- Utilities (proportionate to your workspace)
- Internet (business portion)
- Home insurance (proportionate to your workspace)
- Property taxes (proportionate to your workspace)
- Home maintenance (proportionate to your workspace)
To qualify, the space must be used primarily (more than 50%) for your business or used exclusively to earn business income and used regularly for meeting clients or customers.
4. Mobile Phone Expenses
Since your smartphone is essential for operating as a Lyft driver, you can deduct:
- The business portion of your monthly plan
- The business percentage of your phone’s cost (as CCA)
- Phone accessories used for business (mounts, chargers, etc.)
Keep detailed records of your total phone usage and the portion related to your Lyft activities.
5. Other Deductible Expenses
Rideshare Platform Fees Lyft’s service fees and commissions are fully deductible business expenses.
Passenger Amenities Items provided to enhance passenger experience are deductible:
- Bottled water
- Snacks
- Tissues
- Hand sanitizer
- Air fresheners
Business Software and Apps Subscriptions to apps that help you track mileage, manage expenses, or optimize your driving routes are deductible.
Bank and Credit Card Fees Fees for business bank accounts or credit cards used for your Lyft business are deductible.
Business Licenses Any municipal or provincial licenses required to operate as a rideshare driver are deductible.
Health and Safety Supplies Especially relevant since the pandemic, items like face masks, vehicle partitions, and sanitizing products used in your Lyft business are deductible.
Professional Services Fees paid to accountants, bookkeepers, or tax professionals for services related to your Lyft business are deductible.
Business Insurance Any additional business liability insurance beyond your regular auto insurance is deductible.
Record-Keeping Best Practices
The CRA requires you to keep all receipts and records for at least six years. Implementing these record-keeping practices will save you significant stress at tax time:
- Use Dedicated Banking: Consider using a separate bank account and credit card exclusively for your Lyft business transactions.
- Digital Receipt Management: Use apps that allow you to scan and organize receipts electronically.
- Mileage Tracking: Invest in a reliable mileage tracking app or maintain a detailed logbook.
- Regular Bookkeeping: Set aside time weekly to update your records rather than scrambling at year-end.
- Organize by Category: Keep your receipts organized according to expense categories to simplify tax preparation.
Common Pitfalls to Avoid
Mixing Personal and Business Expenses: Without clear separation, you risk having legitimate deductions denied.
Claiming 100% Business Use: Unless your vehicle is used exclusively for Lyft, claiming 100% business use will raise red flags with the CRA.
Inadequate Documentation: The CRA may disallow deductions without proper supporting documentation.
Missing GST/HST Registration Deadlines: Late registration can result in penalties and interest charges.
Overlooking Provincial Sales Tax: In provinces with separate provincial sales tax (PST), different rules may apply.
Planning for Tax Payments
Unlike traditional employment, taxes aren’t automatically withheld from your Lyft earnings. To avoid a large tax bill and potential penalties, consider:
- Setting aside 25-30% of your earnings for taxes
- Making quarterly installment payments if required
- Registering for a CRA My Business Account to manage your tax obligations online
Conclusion
Understanding the tax implications of your Lyft driving business in Canada can seem daunting at first, but with proper knowledge and organization, you can maximize your legitimate deductions and minimize your tax burden. Remember that tax laws change frequently, so it’s advisable to consult with a tax professional familiar with the gig economy for personalized advice.
By tracking your expenses diligently and claiming all eligible deductions, you’ll ensure that your Lyft driving business remains as profitable as possible while staying compliant with Canadian tax regulations.
Disclaimer: This blog post provides general information only.