The current Canada Revenue Agency (CRA) crackdown on Canada’s growing army of gig workers has gone beyond Uber drivers, contractors, consultants, handy-people and freelancers.
Online platforms are now required to report income generated by users and even influencers must report digital/non-monetary gifts, including promotional products, as income.
A recent survey from H&R Block finds an estimated 7.4 million Canadian adults are part of the gig economy. It also reveals that over one-third of gig worker don’t even report their income.
Failing to claim all income is a criminal offence that could result in fines and ultimately jail time, but following the rules can lower the amount of income that is taxed. A qualified tax professional can help. Here’s how it works.
File as a business
First, it’s important to understand that a side gig is considered a business entity for tax purposes and requires a separate filing in addition to your basic T1 personal return.
In most cases, the CRA requires a T2125 Statement of Business or Professional Activities, which includes a tally of total income generated from the business during the year and direct business expenses that qualify as deductions such as office expenses, tools and equipment, advertising, meals and travel.
CRA provides specific industry codes that should match your primary business activity. If you have more than one distinct business, a separate T2125 must be filed for each.
While gig workers don’t receive T4 slips from employers, they might receive a T4A slip from the financial service they use. If not, they must track and report earnings and expenses.
If gig earnings exceed $30,000 over 4 consecutive calendar quarters, a GST/HST/QST registration number is required.
Gig income over $3,500 requires contributions to the Canada or Quebec Pension Plans based on total income minus expenses.
Tax perks for gig workers
Employment Insurance is optional and could include benefits such as maternity, parental sickness, family caregiver, and compassionate care.
Federal, provincial or territorial tax credits could also be available to lower your tax bill depending on your individual situation.
This year’s filing deadline for self-employed Canadians is June 15 but any balance owing must be paid by the general filing deadline of April 30 to avoid interest charges.
Monthly or quarterly payment installments can be set up with the CRA to avoid large tax bills.
Home office deductions
The CRA-approved method for calculating home office expenses permits a portion of home utilities including electricity, heat, water, insurance, property taxes, mortgage interest, and repairs and maintenance to be deducted from taxable income.
The portion is based on the square footage of the home office in relation to the total square footage of the home. If, for example, the office space is one-fifth of the home, twenty per cent of eligible household expenses can be deducted from the business income.
Vehicle deductions
In addition to home office expenses, Canadians who use their own vehicles to generate income can deduct the work-related portion of costs. Those expenses include repairs and maintenance, vehicle insurance, license fees, fuel, and lease or depreciation if you own the vehicle.
Tax experts say it is essential that people claiming vehicle expenses document their usage and expenses. You need to be able to substantiate any of the claims that you make. If your apportionment of your vehicle expenses is sixty per cent, for example, you need to be able to support that. That includes individual entries for each business trip; the date, destination, purpose, distance in kilometers and maintenance costs for the entire year.
They suggest recording the vehicle’s odometer reading at the beginning and end of each year.
