Dale Jackson

Personal Finance Columnist, Payback Time

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An estimated 28 per cent or 9 million Canadians are considered part of the gig economy, according to a recent H&R Block survey.

For some, part-time work is a sole source of income. For others, it’s a side hustle to full-time employment or a retirement income supplement.

In any case, the Canada Revenue Agency (CRA) considers it 'income' and that could spell trouble for gig workers who don’t declare their cash. 

The H&R Block survey also finds 27 per cent of gig workers did not file last year and 32 per cent do not plan to file any gig-related income before the June 15 deadline for self-employed Canadians. 

Failing to claim all income is a criminal offence that could result in hefty fines or even jail time, but following the rules has benefits. A qualified tax professional can help maximize those benefits, but here are some basics:

File as a business

First, it’s important to understand that any side gig that generates income is considered a business entity for tax purposes and requires a separate filing.

As a business owner, you will not be supplied with a T4 form, and taxes are not automatically deducted from your paycheque. If your income is over $3,500, you must make Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions.

On the upside, filing with the CRA can bring credits and benefits from provincial and territorial governments.

Declaring income can also offer tax-saving opportunities by creating more room to contribute to a registered retirement savings plan (RRSP)

If you claim over $30,000, you are also required to register for a GST, HST or QST number (depending on your province or territory) and pay up. 

In most cases, the CRA requires a T2125 Statement of Business or Professional Activities, which includes a tally of total income generated from the business during the year and direct business expenses that qualify as deductions such as office expenses, tools and equipment, advertising, meals and travel.

Home office deductions 

Bad news: the $500 simplified deduction for home-office use introduced in the wake of the pandemic no longer applies for the 2023 tax year.

Good news: those who keep track of their expenses throughout the year could find the tax-deductible cost of running a home office is much higher, anyway. 

The traditional method, known as The Detailed Method, permits a portion of home utilities including electricity, heat, water, insurance, property taxes, mortgage interest, and repairs and maintenance to be deducted. 

The portion is based on the square footage of the home office in relation to the total square footage of the home. If, for example, the office space is one-fifth of the home, twenty per cent of eligible household expenses can be deducted from the business income.

To help determine which method would provide the biggest tax break for you, the CRA provides a calculator on its website to add up eligible expenses.

Vehicle deductions  

In addition to home office expenses Canadians who use their own vehicles to generate income can deduct the work-related portion of costs. Those expenses include repairs and maintenance, vehicle insurance, license fees, fuel, lease or depreciation if you own the vehicle.

Tax experts say it is essential that people claiming vehicle expenses document their usage and expenses in a log book. You need to be able to substantiate any of the claims that you make. If your apportionment of your vehicle expenses is sixty per cent, for example, you need to be able to support that. 

The way to support it is to maintain a log book, which requires individual entries of each business trip; the date, destination, purpose, distance in kilometres and maintenance costs for the entire year.

They suggest recording the vehicle’s odometer reading at the beginning and end of each year.