Got a Side Hustle? Here Are 6 Ways to Reduce Tax-Filing Friction

If you’re one of the millions of Canadians with a side hustle, what you don’t know can hurt you at tax time.

Even though a part-time gig might not feel the same as your full-time job, the Canada Revenue Agency doesn’t see much of a difference where your income is concerned. That could be a problem for about 30% of gig workers, who revealed in an H&R Block survey that they don’t plan on reporting all of their gig-related income to the CRA this year. As a side hustler, you’re already accustomed to working hard anyway, so don’t start cutting corners now. It’s better to go the extra mile: Check all the boxes so you’re not sending up the kind of red flags that could lead to questions (or worse) from the CRA.

Whether you’re new to the gig economy or a seasoned side hustler, knowing how to prepare for tax season can make it go a lot smoother.

6 must-dos for side hustlers at tax time

1. Report all of your side gig income

The Canada Revenue Agency (CRA) requires you to report all income — even from nontraditional sources — on your tax return.

For instance, social media influencers, content creators and digital entrepreneurs might receive products, brand trips, gift cards, e-commerce payouts or other forms of compensation. The CRA counts all of these items as income for tax purposes. You’ll document this and all other income on Line 26000 of your tax return, and by filing Form T2125, the statement of business or professional activities. Incorporated businesses will complete a T2 corporation income tax return and a Schedule 125 (income statement information). The CRA might know more about your side income than you think. Gig platforms have to collect and report information about certain users under CRA’s digital platform reporting rules. If you use these platforms for contract jobs, hiding your income isn’t a good move because they’re getting data directly from companies. Failing to report all of your income comes with penalties in some situations — and if you repeatedly fail to report $500 or more, the CRA may apply a federal and provincial/territorial penalty.

“The last thing you want is to receive any sort of notification that you didn't include any particular income in your tax return,” says Stefanie Ricchio, a chartered professional accountant and tax expert with Intuit TurboTax Canada.

2. Act like a small business owner

One of the most important things for side hustlers to remember isn’t about tax forms or rules. It’s about adopting the habits of a business owner.

“You’re now, to a certain extent, taking on the role that your employer would take on for you,” says Martha Adams, a certified financial planner and founder of Martha Adams Media in Guelph, Ontario. “So you’ve got to be documenting, documenting, documenting — income and expenses.”

Another common practice for business owners is to build a wall between their personal and their business finances. When appropriate, get different bank accounts and credit cards for your side business so there’s clear separation from your personal finances, Ricchio advises.

3. Set more money aside for taxes than you might need

Both Ricchio and Adams recommend setting aside 25% to 30% of your yearly earnings for taxes. This might require withholding a meaningful amount from each invoice payment you receive during the year so you’re not scrambling to come up with the cash at tax time.

If you have a full-time salary on top of gig income, it could push your total earnings into a tax bracket with a higher marginal rate. When this occurs, more of your gig income will be taxed at a higher rate, Adams explains. That could lead to a higher tax bill.

4. Meet your GST/HST responsibilities

A critical tax obligation for side hustlers is collecting and paying goods and services tax/harmonized sales tax (GST/HST).

If you earn more than $30,000 over four consecutive quarters, you’re typically required to register for a GST/HST number and collect and remit sales tax for your services or goods. Although if you’re a ride share driver, you need to collect these taxes no matter how much you earn.

The rate you charge depends on your province. If you’re an Uber driver in Ontario, for example, you’ll charge an HST rate of 13%. Other provinces may charge a separate provincial sales tax (PST) alongside the federal GST.

Paying two taxes requires you to submit two separate filings, Adams says.

“You are collecting it as the small business owner or the side gig, and then you’ve got to pay it out — and unfortunately, the money is gone,” Adams says of GST/HST. Her recommendation is to keep collected HST in its own separate account.

If collecting sales tax is new or confusing, the CRA’s GST/HST calculator might bring a little clarity.

5. Claim all the deductions you’re eligible for

If you earn income from a side hustle, you have access to several tax deductions that traditional full-time employees don’t get.

Ricchio explains that eligible deductions can be extensive, helping lower your overall tax burden. Business deductions might include:

6. Consider incorporating if your side hustle grows

Ricchio says that when your side hustle consistently earns more than $80,000 to $100,000 annually in net profit and you have a reliable stable of clients, incorporating makes financial sense, as it can lower your tax burden and personal liability.

A business structured as a Canadian-controlled Private Corporation (CCPC) earning up to $500,000 in active income may qualify for a combined federal and provincial tax rate as low as 12.2%, she explains. That’s considerably lower than the top personal tax rate most successful gig workers would otherwise pay — 33% in federal taxes plus the applicable provincial tax rate.

However, for most side hustlers just starting out or earning sporadic income, incorporation is likely not worth the administrative hassle and expense.

“Incorporation shouldn’t be viewed as the first step when starting a side hustle,” Ricchio says. “It’s usually something to consider after the business proves it has staying power and meaningful profit.”