Working as a freelancer, independent contractor, or gig worker means running your own business. However, since your T4 slip doesn’t report your annual income, it’s up to you to figure out what you made and what you must include on your return taxes.
This task can be daunting, but you don’t need to panic! The tax experts at Gateway Tax are here to help.
Whether you work as a gig worker as an extra income through Instacart or as a primary source of income through Uber, here’s what you need to know about filing your taxes.
Are These Tips Relevant to You?
The Canada Revenue Agency (CRA) and BC tax agency classify freelancers, contractors, and gig workers as businesses because they operate for a profit. As a result, you should report any business income on your return, like those in the following examples:
- Side hustles such as selling handmade candles on Etsy or running a local dog-walking business;
- Earning supplemental income by using apps such as TaskRabbit or SkipTheDishes;
- Offering accommodations through websites such as Airbnb; and
- Working as a freelance artist or programmer.
Your business name will be followed by Inc., Ltd., or Co. If it is incorporated, some of the tips in this article won’t apply to you. Consider speaking to a former CRA auditor at Gateway Tax about filing an income tax return instead if you’re unsure.
Keep Copies Of Your Documents Organized & Up-To-Date
Keeping track of your earnings (and expenses) is essential when running your own business.
Your documents should be sorted by date and stored in a folder. Maintain copies of invoices you’ve sent to clients and receipts for expenses you incurred to do your job (for example, gas or work-related supplies).
Keep all your tax-related documents for at least six years so that the CRA and BC tax authorities can review them if they select your return for a detailed review.
No Matter How Much You Earn, You Must Report It
Gig work income must be reported on your tax return using the business or professional activities (Forms T2125 and TP-80). Unreported gig work payments can result in substantial penalties.
There are advantages to reporting what you’ve earned on your return, even if your total income doesn’t exceed your basic personal amount (meaning you won’t owe federal taxes on it). For example, the government needs this information to determine your eligibility for tax credits and benefit programs, including the GST/HST Credit and the Canada Child Benefit.
You might miss out on these benefits if you don’t include all your income on your return. By reporting your total income, you will also have more room to put into investments such as RRSPs and TFSAs.
Don’t forget that just because you make money from a hobby doesn’t mean it’s a side job. For example, suppose you are a photographer and take pictures at a neighbour’s family reunion as a favour one spring. You receive $150 for your services. Then, toward the end of the year, your niece pays you $75 to thank you for taking her headshots for an acting school application.
Occasional self-employment earnings such as these don’t qualify as self-employment income, so you aren’t required to report them. However, you should disclose this type of income if you regularly make money from your hobby.
You Can Reduce Your Taxes by Claiming Work-Related Expenses
Have you ever considered claiming your work-related expenses to reduce your taxes? Your return might allow you to claim costs related to the gig you had.
You might incur expenses such as maintaining your vehicle (such as replacing brake fluid or installing winter tires) and providing passengers with supplies (such as water or snacks).
The same is true if you have to purchase toilet paper for your guests or pay for a cleaning service after the stay if you are renting your home. To find out what expenses you can claim on your tax return, reach out to the CRA Auditor.
Calculate When You Should Charge GST/HST
There is a possibility that you may have to register to collect federal goods and services tax (GST) and, in some provinces, harmonize federal-provincial tax (HST).
Your gig will require a GST/HST number when you earn over $30,000, and you’ll begin charging your clients for GST/HST. Discover how small businesses can charge GST/HST in this related blog.
NOTE: Most provinces except Québec require ride-sharing drivers (including Uber and Lyft) to immediately obtain a GST/HST number. This rule does not apply to drivers who only deliver food or drinks (such as those engaged in Uber Eats gigs but not driving passengers).
Do These Rules Apply to CPP/QPP and EI?
The answer is yes, but there are thresholds involved. For example, imagine your net self-employment income (plus pensionable employment income) is more than $3,500. Then both you and your employer must start contributing to the Canada Pension Plan (CPP) or the Québec Pension Plan (QPP).
The Schedule 8 form calculates the CPP/QPP contributions you must pay on your self-employment income.
As an alternative, employment insurance is optional for self-employed workers in all provinces and territories, except Quebec. As a result, you do not have to pay EI premiums on self-employment income (except in Quebec) by default.
You can participate in the EI program as a gig worker by registering with the Canada Employment Insurance Commission. There are unique benefits, such as:
- Parental and maternity leave;
- health insurance;
- help for family caregivers (children and adults); and
- benefits for patients with disabilities.
To learn more about EI’s unique benefits for self-employed people and apply, visit the Government of Canada’s EI excellent benefits guide.
There are no regular benefits available to self-employed workers, who cannot receive financial support when they lose their jobs or are laid off.
Do You Receive Benefits from Your Job?
Your full-time job is not directly affected by the income from side gigs. Also, you won’t be eligible for GST registration if you work full-time. Because you may be in a different tax bracket this year, you may owe more taxes than you did last year.
Prepare Your Return as soon as Possible
Self-employment income can complicate your tax situation, so you should look ahead to avoid rushing the April 30 tax deadline. Take a few extra weeks to file your return with the CRA. After that, you have until June 15 to make your federal tax payment if you owe
You can still file both your spouse’s and your tax returns by June 15 if at least one of you is self-employed and any balance due is paid by April 30 (or May 31 if you’re a Québec resident).
If you file late and owe the government taxes, the Canada Revenue Agency will charge you interest and penalties. Get help from Gateway Tax if you are late in paying return tax. The income you earn from side gigs can be high, but they also complicate figuring out your taxes. So we’re here to help!
Meet with a Former CRA Auditor
My name is Andrew Adolph, and I am a Certified Professional Accountant (CPA) with over 24 years of experience as a CRA auditor.
As a CRA auditor, I met hundreds of small business people, NPOs, and charities. They all expressed frustration with the CRA and the accounting industry, particularly about GST and PST.