In the below blog, we will answer the following questions:
1) What are ride-sharing services?
2) Are ride-sharing costs eligible for a tax deduction for your business?
There are many ride-sharing services available with Uber and Lyft being the most popular and most available in major cities. Our city of Kelowna only recently approved Uber to bring its ride-sharing services to customers. While taxis and personal transportation are more popular locally nowadays, I expect to see a shift in how people and businesses get around in the near future.
Generally, if an expense is incurred to earn business income, then the expense is eligible to be a deduction against earned income for corporate tax purposes. In other words, ride-sharing costs from services like Uber and Lyft are eligible for a tax deduction; however, their purpose in earning business income needs to be clear and documented. So then, what is the best way to make sure these expenses are eligible for a tax deduction in Canada when you file your corporate tax return?
Understand the Business Purpose of the Trip
You can never deduct personal travel from your business earnings on your corporate tax return. For example, morning travel from your home to the office is considered personal and cannot be deducted. So if you are heading to your first client of the day from your home, then it is considered personal, and the Uber or Lyft expense if you used a ride-sharing service generally isn’t deductible. However, any ride-sharing trips between your client’s offices during the day and after the first trip would be a business expense. Alternatively, if you work from home regularly and have a home office, trips from the home office to the client would be considered tax deductible. The difference in this case is that you normally do not travel to your clients, however, for whatever reason, to earn business income that day, travel was necessary for a specific reason.
Maintain a Travel Log
It is important to be diligent and to maintain a log of trips taken with the purpose of each trip. Your travel log should include the travel date, time (if several trips are taken during the day), pick-up location, and destination. Many people are aware of this requirement if you are using a personal or business vehicle; however, this also applies to ride-sharing service costs. Documenting a log for your ride-sharing activities ensures your ride-sharing cost can easily be identified as a business trip rather than a personal trip.
Receipts and Documentation
In addition to maintaining a travel log of trips, it is also essential to keep receipts for your ride-sharing trips. Receipts can be kept electronically through record-keeping apps like Hubdoc or kept in folders in your emails as a backup. Ride-sharing services like Uber and Lyft should provide you a receipt but you should take care to store them appropriately and not just keep them in their apps.
Ride-sharing services refer to taking trips with Lyft or Uber drivers and yes, you can generally claim the cost of these trips as a business tax deduction if the cost is incurred to earn business income. To help support your tax deduction, make sure the purpose of the trip is clear, keep a log, and make sure you keep your receipts as proof of payment and amount.
Remember to always consult a qualified tax professional or accountant for any specific advice relating to your business.