How to navigate the tax code if you’re a gig economy worker
Whether to supplement income or turn a passion project into a business, an increasing number of young Canadians are turning to the gig economy to make some extra cash. That’s prompting the Canada Revenue Agency (CRA) to pay closer attention to potentially under-reported tax returns of Etsy merchants, Uber drivers, social media influencers and beyond.
According to an Abacus poll conducted for the Direct Sellers Association of Canada, nearly one-third of Canadians pursued side jobs during the pandemic, a trend that’s expected to grow.
“There’s never been a better time to create a side hustle than now,” said 25-year-old Ottawa native, Griffin Milks. “In the digital age – literally – anyone can do it directly from their phone.”
Milks quit his government job to focus on his YouTube channel, which has grown to 85,000 subscribers over the last two years. He teaches stock market and real estate investing, and has bought or flipped over ten properties in the capital region.
“If you’re getting a lot of traffic, it’s not out of the question that you could be making tens of thousands of dollars a month, if not more,” he said. According to Milks, content creators can earn $10,000 to $15,000 in additional annual income with two posts per week while also growing the number of followers.
Jessica Moorhouse quit her full-time marketing job to launch her More Money Podcast that now has over two-million downloads.
“I realized that I got excited to go home after work and work on my business,” she said.
Moorhouse started educating others about personal finance through her blog and social media ten years ago, but decided she wanted to reach a broader audience by offering online courses and making video tutorials on YouTube. “If I create a course that answers pretty much all of your questions and show you how to do it, I feel that’s kind of a better use of my time,” she said.
One such video tutorial breaks down how to register for a GST/HST account if you run a side business. If your supply costs exceed $30,000 for the year, CRA requires businesses to register for, collect, and pay GST/HST on all taxable sales from online activities. It’s a requirement for all Uber drivers, which fall under the CRA’s definition of a taxi business.
“Our tax system really is on the honour system,” said Brian Quinlan, partner with Toronto-based accounting firm, Allay (Campbell Lawless LLP). “I think everyone knows that they should be paying tax…whether they are or not is another question.”
The CRA said in an emailed statement that it “leverages business intelligence from internal and external sources to assist with the identification of high-risk platform economy files.”
This includes the use of the Unnamed Persons Requirements (UPR), a court-authorized process that grants the CRA access to information from third parties (such as a bank or condo developer) to verify major transactions.
While such compliance initiatives target ‘bigger fish’, Quinlan warns the tax authority can scan for non-compliance of sole proprietors. “If you have a house in a [certain] postal code and reporting only $10,000 of income, that’s often a trigger,” he said.
Quinlan, who has serviced wealthy clients in his 40-year accounting career, said good record-keeping is key regardless of your net worth. “There are penalties for not reporting [and] the pain of going through a tax audit can be a waste of time,” he said.
Both Milks and Moorhouse enlist the help of an accountant to file their taxes but for side hustlers starting out, they recommend having a separate bank account to capture business transactions and to better track tax-deductible business expenses like high-speed internet and website domain costs that are often overlooked.
Moorhouse recommends starting with bookkeeping software like FreshBooks and leveraging information from H&R Block and TurboTax blogs.
Tax filing can be confusing for side-hustling social media influencers whose revenue sources can range from advertisements to sponsorships, product endorsements, and speaking engagements. Non-monetary items like gifts must be valued appropriately.
“It’s kind of a grey area,” said Milks. “If you’re a fashion [blogger], I’m not really sure how [the CRA] can count gifts as income because you can’t go to the store and buy groceries with a sweater.”
Moorhouse goes by a rule of thumb advised by her accountant: If you can prove without a doubt that an item is needed to operate or grow your business, then it can be claimed as a business expense. “For example, if you bought a coffee because you were going to a coffee shop to work, you didn’t need that coffee,” she said. “Unless you’re taking a photo of it.”
Cathy Miyagi is a segment producer with BNN Bloomberg based in Vancouver, and is also a chartered professional accountant (CPA, CMA)