It's been said there's no such thing as a free ride and, at tax time, that's as true for Uber drivers as it is for their passengers.

The controversial app-based ride-hailing service, and its competitor Lyft, are a source of income for tens of thousands of Canadians. But some of them are operating under some misconceptions, tax experts say.

The most common misconception is that their earnings are tax-free.

"And that's obviously not true," says Allan Madan, who heads a small accounting firm in Mississauga, Ont.

'This is one area the CRA loves to audit.' — Dale Barrett, tax lawyer

Drivers must report their earnings, as well as fill out and include Form T2125 with their personal tax returns. And if they made more than $30,000 on the road during the year, they must register with the CRA to charge GST/HST.

Getting the paperwork right is one of the biggest challenges faced by Uber drivers, according to Madan, because they're often new to the responsibilities of self-employment.

"They may not necessarily be business people with exposure to business taxes," he says. "They need education on their filing requirements, on what they can claim and what their obligations are to the CRA.

"Once that education is complete, they're generally on good footing."

Document everything

Uber has more than 22,000 drivers in Canada, operating in a number of cities, including Edmonton, Toronto, Ottawa and Montreal.

In the eyes of the taxman, each one is an independent contractor. Though their payments are routed through the Uber app, they're not technically employed by the company and don't have any tax deducted from their income.

"As with any company that uses independent contractors, it is the responsibility of the contractor to remit their taxes as required by the CRA," Uber spokeswoman Susie Heath said in a statement to CBC News.

Similar rules apply to other aspects of the so-called sharing economy, such as the room-rental service Airbnb.

CRA expects drivers to keep receipts for any expenses, which can be deducted against income, and a detailed log of every ride.

The log is "a must," Madan says, and should include the mileage and destination for every Uber ride.

Drivers must also log all of the personal use of their car — assuming they are driving the same car in their downtime — so they can accurately calculate the Uber-only portion of their expenses for things such as gas, maintenance and insurance.

Tax lawyer Dale Barrett says automotive expenses are often subject to the taxman's microscope.

"This is one area the CRA loves to audit — anything with automobile expenses — because most people don't keep good documentation. It's an easy target," he says.

A wise driver will set aside a certain percentage of every day's take — say about 20 per cent — to cover both federal and provincial income tax. So a $100 fare will, after Uber takes its 25 per cent commission, actually net about $55.

Uber map

Pinched on HST

Independent contractors who make more than $30,000 a year are also expected to charge and pay GST/HST, which poses a bit of a challenge for the Uber crowd. The company does not apply those taxes when calculating the cost of a ride, and there's no way for drivers to add the 13 per cent (in Ontario, for instance) to the bill. Payments go straight from the rider's credit card to the company via the app. Drivers are also not allowed to handle or ask for cash.

'There seems to be a very broad range of misconceptions.' — Dale Barrett, tax lawyer

​Uber drivers must instead make up those payments out of their own earnings. Less another 13 per cent, a driver's take-home from that $100 fare shrinks even more.

"That's where a lot of people are going to get pinched," says Barrett.

Barrett says his Toronto-area firm sees a lot of self-employed and independent contractors, Uber drivers among them, who are unclear about their HST obligations.

"There seems to be a very broad range of misconceptions," he says.

For example, some don't realize that the HST threshold is cumulative for multiple sources of independent income. An Uber driver who only grossed $25,000 last year would still have to register for the HST if he or she had one or more other contract-based gigs — freelance designer? actor? — that brought in another $5,000 or more.

"The combination of self-employment can push you over the limit," he says.

Heath says Uber "regularly communicate[s]" to its drivers how to file their HST paperwork.

There are, of course, some contractors who sidestep both income tax and GST/HST by taking cash payments under the table. Wait staff and other categories of cash-handling employees are harder for the CRA to track.

But Uber's no-cash policy makes it "super easy" for CRA to know who's getting paid — and how much, Madan says.

"There's going to be an electronic trail from the credit card company to Uber to their account," he says. "All you have to do is look at the bank statement."