The workforce is shifting. Can Canada’s tax system keep up?
According to Payments Canada, more than one in 10 Canadians work in the gig economy (Getty Images/LordHenriVoton)
The workforce in Canada, it is a-changin’. Like so many other societal changes the pandemic has accelerated, the last two years has seen the dramatic rise of the gig worker. More specifically, a segment of the workforce the Canada Revenue Agency (CRA) refers to as “platform workers” is poised to grow significantly. The CRA defines platform workers as those making a living through the internet or apps, a broad swath that includes everyone from ride-share drivers and delivery workers to social media influencers and Etsy sellers.
“We’ve noticed more clients that are platform workers since the start of the pandemic,” notes Andrew Bernstein, a CPA and tax principal at Shimmerman Penn in Toronto. “In terms of demographics, they’re mostly younger clients.”
According to Payments Canada, more than one in 10 Canadians work in the gig economy. Eighty-five per cent of companies across Canada anticipate a dramatic increase of this labour force by 2025, according to data from HR services company Randstad Canada.
How will Canada’s tax system evolve to meet the requirements of a shifting workforce?
It will be in the interest of shrinking the gap between paid and unpaid taxes. Based on CRA reports, the C.D. Howe Institute estimates the tax gap was upwards of $22 billion in 2019-2020.
The CRA has been looking for ways to reduce that gap. In 2017, as a response to the rise of the gig economy, the CRA adjusted its guidelines regarding the ride-share sector by making drivers subject to the same tax responsibilities as traditional taxi drivers. Unlike most gig-economy workers, that means they’re obligated to remit GST/HST for each ride, regardless of their annual income. On July 1, 2021, the CRA ruled that non-resident online vendors—a category that includes Airbnb hosts and Amazon sellers—now must remit GST/HST.
For many in the gig economy, navigating the tax waters without a CPA’s guidance can get complicated. For example, how to report business income and expenses on a self-employment statement—given that most platform workers are considered self-employed—is important. “That brings up a lot of fundamental compliance issues, such as identifying eligible expenses they can claim against their income as well as understanding how to categorize those expenses,” says Bernstein. “The complexities can be overwhelming.”
As the gig economy continues to grow, Bernstein believes Canada’s tax system will continue to make adjustments. “The platform economy is driven by technology and that technology leaves a digital footprint,” he says. “I foresee future legislation requiring platform businesses to report more information or to administer tax on behalf of platform workers because they’re more of an entity the CRA can regulate.”
Rita Zelikman, a CPA whose firm is based in Vaughan, Ont., agrees. “There are so many layers, rules and laws that have to be put in place that it could be years before they implement something and catch up. But they will get there and force better reporting of income.”
Then there’s the fact that companies can hire gig workers without having to pay for CPP and EI premiums. That has an inevitable impact “on the ability of gig workers to protect themselves from income disruptions during their working life and when they get too old to work,” says Armine Yalnizyan, a Canadian economist and Atkinson Fellow on the Future of Workers. “By not contributing now, you’re deferring the costs to the next generation of workers who will pay the taxes that provide whatever income support there is for those without pensions.”
As more baby boomers exit the labour market and with automation not yet ready or able to fill in the gaps, Yalnizyan notes, “there will be tension between growing labour shortages, the increasing bargaining power of workers, and the desire of more people to have on-demand access to task-based work.”
In other words, she says, “changes are coming.”
STAY ON TOP ON TAX ISSUES
Gain deeper understanding on changing tax matters with CPA Canada’s tax blog that delivers practical information and fresh perspectives on emerging issues.