Welcome to the gig economy! Tax tips for self-employed workers.
March 12, 2021
Being a freelancer, independent contractor, or gig worker is like running your own business. You won’t get a T4 slip that reports your income for the year, so it’s up to you to figure out what you made, and what you have to include on your return. But don’t worry! H&R Block is here to help. Whether you’re earning extra cash by delivering groceries through Instacart, or if being an Uber driver is your main source of income, here’s what you’ll need to know about filing your return as a gig worker.
How do you know if these tips apply to you?
If you do something with the intention of making a profit, then it’s considered “a business” according to both the Canada Revenue Agency (CRA) and Revenu Québec. You’ll need to report your business income on your return. Some examples of this type of income include:
- Side hustles like selling handmade candles on Etsy or running a local dog-walking service;
- Occasionally running errands for extra income through platforms like TaskRabbit or food delivery apps like SkipTheDishes and Uber Eats;
- Renting out your home or cottage through accommodation sharing websites like Airbnb; and
- Working as a freelance artist or programmer.
If the name of your business is followed by lnc., Ltd., or Co., then your business is incorporated, and some of the tips in this article won’t apply to you. Find an H&R Block office near you so one of our Tax Experts can help you file a T2 Corporation Income Tax Return instead.
Keep your records.
Since you’re basically running your own business, it’s important to stay organized and keep record of the money you make (and spend).
Make a habit of storing your documents in a folder and sorting them by date. If applicable, keep copies of the invoices you’ve sent clients, and receipts for expenses you needed to do your job (for example, the cost of gas or work-related supplies).
Be sure to keep all your documents for at least 6 years – the CRA and Revenu Québec can request to see them at any time if your return is selected for a detailed review.
You need to report your income (yes, even if you earn cash).
No matter how you generate income from gig work, it needs to be reported on your return using the Statement of business or professional activities (T2125 and TP-80). Unclaimed income can result in significant penalties.
Even if your total income isn’t higher than the basic personal amount (meaning you won’t owe federal taxes on it), there are advantages to reporting what you’ve earned on your return. The government needs this information to determine your eligibility for federal and provincial/territorial tax credits and benefit programs, such as the GST/HST Credit and the Canada Child Benefit. If you don’t include all your income on your return, you might miss out on these benefits. Reporting your total income will also establish more room to contribute to investments like your RRSP or TFSA.
Keep in mind, if you sometimes make money off of a hobby, that doesn’t mean it’s a side gig. For example, let’s say your hobby is photography and you take pictures at a neighbour’s family reunion one spring, as a favor. They pay you $150. Closer to Christmas, you take some headshots of your niece for an acting school application and she pays you $75 as a thank you. These occasional earnings aren’t considered self-employment income and they don’t need to be reported. However, if you often make money off of your hobby (for example, if you’re regularly paid to take headshots of your friends), that’s a sign that your hobby is actually a business and your income needs to be reported on your return.
Save on taxes by claiming your work-related expenses.
Did you know that you might be able to claim your work-related expenses to reduce the taxes you owe? Depending on the type of gig you have, you might have expenses that you can claim on your return.
Common expenses for ride-sharing drivers might include maintenance costs for your vehicle (such as replacing your brake fluid or installing winter tires) and the cost of supplies you provide to your passengers (such as water or snacks). Similarly, if you’re renting your home and need to stock toilet paper for your guests or pay for a cleaning service after their stay, you might be able to claim these expenses as well.
Find an H&R Block office near you so one of our Tax Experts can help you figure out what expenses you can claim on your return.
Figure out when you need to charge GST/HST.
You might be wondering if you should register your business to collect the federal goods and services tax (GST) and in some provinces, the harmonized federal-provincial tax (HST).
Once your gig starts earning over $30,000, you’ll need to register for a GST/HST number and begin charging your clients GST/HST. Check out this related blog to learn more about when to charge GST/HST as a small business.
Note: Ride-sharing drivers (including Uber and Lyft) in every province except for Québec need to register for a GST/HST number right away. This doesn’t apply to drivers who only do deliveries (for example, if you have an Uber Eats gig, but never drive passengers).
What about CPP/QPP and EI?
This is where some thresholds come into play. For example, if your net self-employment income (plus pensionable employment income) is more than $3,500, you need to start contributing to the Canada Pension Plan (CPP) or Québec Pension Plan (QPP), both as an employee and an employer. The CPP/QPP contribution you need to make on self-employment income is calculated on the Schedule 8 form.
Employment Insurance (EI), on the other hand, is optional for self-employed workers in all provinces and territories except Québec. This means by default, you don’t have to pay EI premiums on your self-employment income (except in Québec).
As a gig worker, you can opt into the EI program by registering with the Canada Employment Insurance Commission. You’ll be able to register for special benefits such as:
- Maternity and parental benefits;
- Sickness benefits;
- Family caregiver benefits (for children and adults); and
- Compassionate care benefits.
For eligibility requirements and more information, visit the Government of Canada’s EI special benefits for self-employed people guide.
Note: Self-employed workers aren’t eligible for regular benefits, which provide financial support to workers who are laid off or lose their job.
How does your full-time job factor into this?
Your full-time job has no direct impact on how you report the income you earn from side gigs. Your full-time job also won’t count towards the $30,000 threshold for registering for a GST/HST number.
However, having two (or more) sources of income means you could find yourself in a different tax bracket and you could have to pay more tax this year than you did last year.
Take advantage of extra time to prepare your return.
Earning self-employment income makes your tax situation a little more complicated. Luckily, the CRA and Revenu Québec give you a few extra weeks to file your return. Your deadline to file is June 15.
Keep in mind that if you owe taxes, your payment is still due on April 30.
If you and your spouse are preparing your returns together and only one of you is self-employed, you can still file both returns by June 15 as long as any balance owing is paid by April 30.
If you file late and you owe taxes to the government, the CRA and Revenu Québec (if applicable) charge interest and late-filing penalties on the amount you owe. Visit this H&R Block Online Help Centre article for more information on what happens if you file your return late.
How will COVID-19 relief measures impact my 2020 return?
If you mistakenly applied for the CERB based on having a gross income of at least $5000 in 2019 (the amount you made before subtracting your work-related expenses), you’re no longer required to pay back your benefits! Check out this blog on what you need to know about repaying COVID-19 benefits to learn more.
Additionally, if you received COVID-19 emergency benefits in 2020, you won’t be charged interest on the taxes you owe until April 30, 2022. Check out this blog on how COVID-19 benefits might affect your 2020 return to learn more.
Side gigs might be a great way to earn some income, but they also make figuring out your tax situation more complex. That’s why we’re here! Get help from the largest network of reliable Tax Experts by choosing one of four convenient ways to file: File in an Office, Drop-off at an Office, Remote Tax Expert, or Do It Yourself Tax Software.