Home » Top Tax Filing Tips for Canadian Gig Workers
Many Canadians are taking advantage of a surge in freelance and side hustle opportunities to supplement their income while maintaining the freedom to set their own work limits and standards. However, one disadvantage for freelancers is that any additional income is subject to taxation. Self-employed people, freelancers, and sole proprietorships are all subject to freelancing taxes.
Regardless of how much money you make from your side hustle, you must declare it to the CRA when tax season arrives. Any act of knowingly failing to submit income is deemed tax evasion, according to the law.
While it is doubtful that the CRA will pursue you for tiny amounts, it is always preferable to be on the safe side and follow all the tax laws. You will hopefully earn more money in the future, so although even if your income is low this year, you might as well learn about how gig workers are taxed today.
Because there is no legal requirement to form a business for freelance work, gig workers can invoice under their own names. If you prefer to invoice under a company name, that company must be registered in the province where you operate. That will also change your tax situation, and at that point you might want to consult with a tax professional to help you get it right.
It is critical to keep track of all income and costs whether you are self-employed, a freelancer, or a small firm taking on gig work. Expenses incurred in the process of operating your firm can be deducted from gross income, resulting in tax savings. An Uber driver, for example, can deduct car maintenance expenditures from the money they earn while driving for Uber.
It’s critical to be organized because expenses acquired while working on your assignment might easily be overlooked if you assemble everything at the end of the week, month, or even year. There are a plethora of apps and online tools available to assist you keep a digital copy of all your receipts and track your business income and expenses, and you should make good use of them!
It’s also a good idea for gig workers to keep their business and personal finances separate. For starters, it can make your small business appear more real to customers, while also helping you to keep better track of revenue and spending. You may avoid the hassle of having to go through your personal spending to identify business expenses when tax season arrives by separating the two from the start.
Also, expenses are easier to justify to the CRA because there is less misunderstanding about what constitutes a professional or company deduction versus a personal expense. Deducting personal expenses from self-employment revenue is a huge no-no in the tax world.
Different deductions may be available to you depending on how your firm is categorised. You may need to do some study to figure out which group you belong in.
For example, depending on the services you provide during your guests’ stay, you may be classified as a hospitality company operator or a landlord if you rent out your home on Airbnb.
If you just gave your guests access to the property, you’d be considered a landlord, and whatever money you made would be considered rental income. However, if you offer services like breakfast, laundry, or cleaning, you’re running a hospitality business. In this scenario, the breadth of your services will determine whether the income earned from your house is classified as rental income or income from a hospitality business.
Using the same example, money produced from Airbnb agreements that is considered rental income allows you to deduct housing costs. Mortgage interest, utilities, property tax, upkeep, and repairs are all qualifying deductions in this situation.
However, keep in mind that expenses will need to be prorated in order for the amounts to be proportionate to the portion of your home that you rent out and the length of time that it was rented out. For instance, if you only rented out half of your home for six months of the year, you can only deduct 25% of your total qualified expenses (50 percent for half of the space rented x 50 percent for half of the year).
If all of this information is overwhelming, another alternative is to employ an accountant when tax season rolls around. Keep all of your bills and receipts, including personal stuff, if you pick this option. An accountant will use these to reduce your tax liability.
Once a freelancer earns more than $30,000, he or she is needed to register for a GST or HST account. To be clear, only freelance income counts toward this criterion; money from conventional employment is not included in the computation.
If you earn more than $3,000 per year as a gig worker, you’ll have to pay your taxes in quarterly installments. You’ll need to start collecting taxes on your freelance employment after you have a GST or HST number. The tax rate that applies is determined by the province where your client’s tax base is located. For example, a Toronto company would charge their Montreal client the Quebec GST rate of 5%.
You must pay the government the GST or HST that you collect. The good news is that you can deduct the amount of GST or HST you paid on business costs from the amount you owe the government. Keeping track of all your invoices and receipts will once again assist you in calculating the GST or HST due.
If it will be your first time filing taxes as a freelancer or gig worker, it’s very tempting to tackle doing your taxes yourself. However, it’s also very easy to make costly mistakes. Any tax software, for example, is only as good as the information you feed into it. So, if you are mislabelling expenses, or forgetting to add paid invoices – or unpaid ones – the software won’t know and can’t help you.
Having a professional file your taxes for you avoids all of this. We ask enough real time questions to ensure you are not forgetting anything and can even help you plan for your future taxes, helping you understand when might be the right time to make the switch from freelancer to small business owner or how to make the most of the increase in income you will hopefully enjoy this year.
As it’s tax season right now, there has never been a better time to get started, so contact us today and let’s do just that!