$135 MILLION IS ONE HELLUVA TIP. But that’s what Canadians give ride-hailing giants like Uber and Lyft every year. And it’s all technically legal.

After scouring public records the progressive non-profit advocacy group Canadians for Tax Fairness (C4TF) estimates the two companies avoid up to $81 million a year in payroll taxes.

The companies manage this legal sleight-of-hand by claiming all their drivers are independent contractors—rather than employees.

The July 5 C4TF report, also concludes it is impossible to know for certain how much the companies pay because of a serious lack of transparency in the Canadian tax system.

Also avoid income tax

The 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.

The companies operate internationally and so are not required to publicly report earnings or tax payments on a country-by-country basis. This loophole allows them to shift profits around the world to lessen—or even escape— 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.

C4TF does not accuse Uber or Lyft of doing anything outright illegal. They simply point out all the companies do is take advantage of loopholes in Canada’s regulatory framework.

Uber and Lyft deny the allegations in the report. But neither company will say how much they pay in Canadian taxes each year.

Drivers lose out

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.

App-based workers are not entitled to basic protections like minimum wage and the right to unionize. The classification has faced legal challenges around the world, including in Canada.

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.

The C4TF report also says ride-hailing companies should be regulated as transportation providers and their workers classified as employees.

Toxic business model

The report notes: “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.”

D.T. Cochrane, policy researcher at C4TF, said that, while his group believes ride-hailing companies’ are bad for the economy and individual workers, its main criticism is aimed at Canadian laws and 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.

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 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.

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.

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