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02 January 2025

Canada Enforces New Tax Compliance Measures For Gig Workers

Recent legislation and court rulings reshape taxpayer responsibilities and reporting for gig economy platforms.

Tax Changes Revamp Reporting Duties for Canadians and Gig Workers

A landmark decision by the Tax Court of Canada and new legislation target tax compliance and reporting practices.

Recent amendments to Canadian tax laws have resulted in heightened responsibilities for taxpayers and digital platform operators as the Canada Revenue Agency (CRA) aims to enforce stricter compliance measures.

One significant case, Lewis v The King, examined the extent to which taxpayers are expected to review their tax returns, leading to the Tax Court's decision underscoring the importance of due diligence. The case centered on whether misrepresentation on tax returns justified the CRA's reassessment beyond the usual three-year period. The taxpayer, who relied heavily on her professional tax preparer, faced scrutiny for failing to review her submissions adequately.

The court determined her neglect warranted the CRA's reassessment, noting specific misrepresentations tied to her rental expenses and vehicle deductions. The ruling made it clear: taxpayers must actively engage with their returns to avoid potential penalties.

The court emphasized, "Taxpayers must exercise reasonable care when filing tax returns," and pointed out the consequences of negligence, highlighting their responsibility to verify all information, no matter the source.

Recently, under new federal legislation, digital platforms like Uber and DoorDash are now obliged to report information related to gig workers' incomes to the CRA annually. This move aims to prevent income discrepancies and tax evasion among gig economy participants.

David Macdonald, senior economist with the Canadian Centre for Policy Alternatives, noted, "It will now become clear this is self-employment income." The changes, effective this year, require these platforms to report workers' earnings and personal information by January 31 each year. While many gig workers have historically been responsible for reporting their incomes during tax season, this legislation will provide the CRA with detailed insights on gig earnings, enhancing enforcement against underreported incomes.

While some gig workers, like Uber driver Rocco Cornacchia, view these measures positively—believing they will prevent tax evasion—others, including Earla Phillips, vice president of the Rideshare Drivers Association of Ontario, express concerns. Phillips pointed out the lack of benefits like sick days and worker rights associated with gig employment, stating, "They're asking these gig work companies to report as if we're employees, but we don't have any worker rights." This sentiment reflects worries among gig economy workers who fear the law may unfairly target their already precarious earnings.

Meanwhile, the CRA has expanded its SimpleFile program, which permits low-income Canadians to file tax returns via phone. This was presented as part of the federal government's plan to facilitate automatic tax filing services; unfortunately, it appears to be little more than a rehash of prior initiatives.

Designed to assist individuals who do not typically file, the SimpleFile program invites select low-income Canadians to call the CRA for assistance completing their returns. Despite the program's promise, uptake has been dismal, with only about two percent of invitees using the new digital option.

Elizabeth Mulholland, CEO of Prosper Canada, noted barriers to participation among low-income individuals, who may dread communication from the CRA, believing it to be bad news. She remarked, "Their view is it's usually bad news, so they try to avoid it." The government still aims to establish the automatic filing system, though experts like Jennifer Robson recommend creating simple electronic options for all Canadians, as seen with the U.S. Internal Revenue Service.

The need for such options is evident, as the parliamentary budget officer estimates billions could flow to low-income Canadians missing out on government benefits due to filing oversight. The PBO indicated the CRA needs more effective systems to capture those due these beneficial payouts, rather than relying solely on programs like SimpleFile.

Robson pointed out the irony of low-income individuals turning to private tax preparers, who may charge fees when free resources are available through government programs: "If you're standing back and thinking about this from the side of individual taxpayers, particularly those who are lower and modest income, it's definitely defeating the purpose."

With these three developments intertwining—Tax Court rulings on taxpayer responsibility, the new reporting requirements for gig economy platforms, and the expansion of filing assistance aimed at low-income Canadians—Canada is embarking on increasingly nuanced tax legislation. Clearly, the government is making significant pushes to tighten enforcement and compliance within the system, ensuring taxpayers understand their responsibilities and potential repercussions of neglect.

Taxpayers are warned to remain vigilant with their submissions and take advantage of available resources to safeguard against reassessment and unreported income, especially as regulations surrounding gig work evolve.

Overall, these changes reflect the CRA's renewed focus on accuracy, accountability, and fairness across the Canadian tax system, encouraging all citizens to engage responsibly with their tax obligations.

For more insightful tax-related content, visit Taxpage.