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Tax filing requirements: Gig vs. self-employed workers.

March 21, 2024

In the rapidly evolving gig economy, more and more Canadians are engaging in freelance work or operating their own businesses. While the flexibility and independence of these work arrangements are attractive, it's crucial to understand the tax obligations that come with being a gig or self-employed worker in Canada.

Understanding your tax obligations.

Determining your employment status:

    • Gig workers: As a gig worker, you may be classified as an independent contractor, meaning you’re self-employed.
    • Self-employed workers: If you operate your own business or provide services as a sole proprietor, you’re considered self-employed.

The terms "gig worker" and "self-employed" are often used interchangeably, but there are subtle differences between the two:

Nature of work:

  • Gig workers: Typically perform short-term, task-based jobs for different clients or platforms (i.e., ride sharing or driving services such as Uber, delivery services, freelance creative work, Etsy, etc.).
  • Self-employed: Operate their own business or work as independent contractors (i.e., tradespeople, consultants).

Relationship with clients:

  • Gig workers: Often work through online platforms with limited personal contact.
  • Self-employed: Establish direct, ongoing relationships with clients.

Business structure:

  • Gig workers: Often operate as individuals, with no formal business entity.
  • Self-employed: May establish a formal business structure, have employees, and a physical office/workspace.

Independence and autonomy:

  • Gig workers: Subject to platform/marketplace terms, less control over work.
  • Self-employed: More control over business operations, pricing, marketing, and client selection.

In summary, gig workers perform short-term jobs through online platforms while self-employed individuals operate their own businesses, with more control and direct client relationships.

Registering for a business number:

    1. Gig workers: Registering for a Business Number (BN) isn't mandatory for gig workers, but it's recommended for easy tracking of income and expenses.
    2. Self-employed workers: must register for a BN with the Canada Revenue Agency (CRA) to report their business income and expenses.

GST/HST obligations:

    1. Gig workers: If your worldwide business income exceeds $30,000 in the last four consecutive quarters, you must register for the Goods and Services Tax (GST) or Harmonized Sales Tax (HST) and collect and remit these taxes. An exception applies to ride-sharing drivers (for example: Uber drivers), who must register to GST on the first day they start earning income.
    2. Self-employed workers: Similarly, self-employed individuals must register for GST/HST if their business income exceeds the $30,000 threshold.

Reporting income and expenses:

Income reporting:

    1. Gig workers: Report your gig income on the appropriate sections of your personal tax return (T1). This is usually form T2125, Statement of Business or Professional activities.
    2. Self-Employed Workers: Use the Statement of Business or Professional Activities (T2125) to report your business income and expenses.

Common deductible expenses:

      1. Office supplies, travel expenses, advertising costs, and professional fees.
      2. Home office expenses (if you have a dedicated workspace at home).
      3. Motor vehicle expenses (if you use your vehicle for business purposes).

Keep accurate records of your expenses to support your deductions, including receipts, invoices, and bank statements. Because the ink on some receipts tend to disappear with the years, keeping a scanned copy of your records is a good option.

Important tax deadlines:

  • Individual tax return filing deadline: The deadline for filing your personal tax return is generally April 30th of the following year. If you or your spouse/partner run a business, the deadline is extended to June 15th, but any taxes owed must still be paid by April 30th.
  • GST/HST reporting and remittance deadlines: If you're registered for GST/HST, you must file your return and remit any taxes owing by the end of your reporting period, which is determined by the CRA based on your business activities.
  • Quarterly installment payments: Self-employed individuals may be required to make quarterly installment payments towards their taxes if their net tax owing exceeds $3,000 in the current year or either of the two preceding years. If you're a resident of Québec, this threshold is $1,800 instead.

Navigating the Canadian tax system:

  • Consider hiring a Tax Professional: Given the complexities of the Canadian tax system, it may be beneficial to consult with a tax professional who can ensure you meet all your obligations and maximize your deductions.
  • Keeping accurate records: Maintain organized and detailed records of your income, expenses, invoices, receipts, and any other relevant documents to support your tax filings. Most supporting documents must be kept for 6 years.
  • Making use of available resources: The CRA provides various resources, including guides, publications, webinars, and online tools, to help gig and self-employed workers understand their tax obligations. These resources can provide valuable information on topics such as business expenses, tax credits, and record-keeping.

As a gig or self-employed worker in Canada, being knowledgeable about your tax filing requirements is essential for compliance and maximizing your tax savings. H&R Block Tax Experts are here to help. Find an office near you to book an appointment today or file yourself with our easy-to-use self-employed tax software.

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