November 2, 2018
Although there is no one definition of the "sharing economy," we will view it as interactions in which individuals or less formal businesses share personal property or services with others for payment. This concept is not new: people have always had the opportunity to engage in activities such as renting out a home while on vacation or selling jam at the local market. However, over the past few years, the popularity of sharing property or services has grown significantly due to technological advancements and increased confidence with online purchases, allowing buyers and sellers to connect more easily. Such arrangements are generally booked through a website, software application or other online platforms.
With over $1.31 billion (November 2015-October 2016, Statistics Canada) in total annual spending in peer-to-peer ride services and accommodation sharing in Canada and abroad, the sharing economy not only provides a significant opportunity for individuals, but also a force with the potential to greatly transform traditional markets.
In this article we will identify a number of income tax, GST/HST and indirect tax issues, and comment on the Canada Revenue Agency's (CRA) activity to ensure compliance, and that income is earned as an individual.
In administering the Income Tax Act, the CRA has identified five key sectors of the sharing economy:
* accommodation sharing--renting out homes, rooms, or cottages;
* transportation--ride-sharing, bike rentals, boat rentals;
* space rentals--gardens, workspaces, laboratories;
* making and selling goods--household goods, jewelry, meal preparation; and
* providing services--esthetics services, dog walking (etc).
Regardless of the sale type, amount, or method, earnings from business activity in the sharing economy must be reported. Just because you do not receive a "tax slip" such as a T4, does not mean the income is not reported.
While some may consider the activity merely a hobby, if the activity is conducted with a view to profit, it is considered to be a business. The tax rules for any business, from the corner store to the large corporation earning billions of dollars, also apply to businesses involved in the sharing economy. While many tax issues for smaller businesses are simpler than large multinationals, they are still complex for many.
Although it is simple to determine how much revenue to report (all of it!), the rules for claiming expenses are much more nuanced. To...