I recently took a ride in an Uber car and had a very interesting conversation with my driver that highlighted a precarious problem for Canadians: being self-employed and planning for end of year income taxes is not always easy for people to do. Within one month I spoke to two drivers and in both cases the concept of putting aside money for income taxes had not even crossed their mind. They were also not aware that when they reach the income threshold, HST would need to be remitted to the Canada Revenue Agency.
In recent years we have seen a shift in our economy that is creating new income streams that Canadians have never had before. These streams are exciting for many of us because they can lead to new opportunities for income, however planning for payment of income taxes (and HST if applicable) is a must and needs to be considered.
Uber drivers represent only one example of these new income streams. We can also consider the new resale market that has been created with online trading sites such as Kijiji and Ebay where everyday thousands of people earn income by buying and selling goods. Further, we see similar examples of new income streams with Airbnb, a site where people can rent out their residence using an online platform. These new methods of generating income are a great way to increase the size on one’s bank account, however in our insolvency practice we have seen many examples of how people don’t have sufficient funds to pay their taxes and the Canada Revenue Agency comes collecting.
The risk in these situations is quite simple: Canadians need to pay tax on their income tax and HST, if they don’t their debts to the Canada Revenue Agency will accumulate – plus interest and penalties (where applicable). Often times it can take years before the CRA starts their collections against a person, but by the time they do the debt owing far exceeds what the individual expects – rarely an amount that anybody wants to pay or can afford to pay.
As many already know, the Liberal Government has made it a priority to “invest additional resources to help the CRA crack down on tax evaders” (click here for more information). Therefore, those who are not paying their taxes, intentionally or not, may find themselves contacted by the CRA sooner rather than later – it’s a published priority for them after all!
As professionals, we can support people living in this new “self-employed” economy by highlighting the importance of paying taxes, and more critically, how to effectively plan to pay the tax bill.
I’ve seen many of these cases in the past and have no doubt there are more to come – filing a proposal or a bankruptcy can deal with CRA debts in order to provide a fresh start, but planning in advance to avoid these debts is a better option.
Feel free to contact me for information on how you can support your clients through this changing economic landscape.