A new survey from H&R Block Canada estimates 7.4 million Canadian adults are part of the gig economy, generating 24 per cent of the country’s income.
It finds the number of Canadians doing freelance or contract work, delivery or ride-share services, homestay rentals and selling products online has increased by 85 per cent since the 2020 Covid pandemic.
The Canada Revenue Agency (CRA) has taken note of the growing army of gig workers by now requiring online platforms to report user’s income.
Regardless, the survey also finds over one-third of gig worker surveyed are either unclear of the tax implications for gig income or, “not inclined to report all gig income.”
In any case, the CRA considers it income and that could spell trouble for gig workers who don’t declare it. The survey finds 27 per cent of gig workers did not file last year and 32 per cent do not plan to file any gig-related income this year.
Failing to claim all income is a criminal offense that could result in fines and ultimately jail time, but following the rules has benefits. A qualified tax professional can help maximize those benefits but here are the basics from H&R Block:
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.
While gig workers don’t receive T4s, they might receive a T4A slip from the platform they use. If not, they must track and report earnings and expenses annually.
If gig earnings exceed $30,000 over four 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.
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.
While full-time workers are required to file their 2024 returns by April 30, gig workers have until June 16.
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.
To help determine which method would provide the biggest tax break for you, the CRA provides a calculator on its website to add up eligible expenses.
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, lease or depreciation if you own the vehicle.
Tax experts say it is essential that people claiming vehicle expenses document their usage and expenses in a logbook. You need to be able to substantiate any of the claims that you make.
If your apportionment of your vehicle expenses is 60 per cent, for example, you need to be able to support that. The way to support it is to maintain a logbook, which requires individual entries of 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.
