Filing Taxes as a Worker in the Gig Economy: Essential Tips for Freelancers, Independent Contractors, and More

As a freelancer, independent contractor, or gig worker, you essentially run your own business. Unlike traditional employees, you won’t receive a T4 slip summarizing your income for the year for workers in the Gig Economy. It’s your responsibility to determine your earnings and report them accurately on your tax return.

Whether you’re boosting your income by delivering groceries through Instacart or relying on being an Uber driver as your primary source of earnings, we have the expertise to guide you through the tax filing process. Discover what you need to know about filing your return as a gig worker and ensure you stay on top of your tax obligations.

Determining Applicability: How to Know If These Tips Apply to You

If you engage in activities with the intention of making a profit, both the Canada Revenue Agency (CRA) and Revenu Québec classify it as a business. In such cases, you are required to report your business income on your tax return. Here are some examples of income that fall under this category:

1. Side hustles like selling handmade candles on Etsy or running a local dog-walking service.
2. Occasional income from tasks or errands completed through platforms like TaskRabbit, SkipTheDishes, or Uber Eats.
3. Renting out your home or cottage through accommodation sharing websites such as Airbnb.
4. Working as a freelance artist or programmer.

If your business name is followed by “lnc.,” “Ltd.,” or “Co.,” it means your business is incorporated, and some of the tips in this article may not be applicable to you.

Essential Guidelines for Gig Workers: Understanding Your Tax Responsibilities

Maintain Accurate Records

As a self-employed individual, staying organized and keeping thorough records of your income and expenses is crucial. Create a habit of storing your documents in a folder, sorted chronologically. Ensure you retain copies of invoices sent to clients and receipts for job-related expenses, such as gas costs or necessary supplies. It’s essential to retain all relevant documents for a minimum of six years, as the CRA and Revenu Québec may request them during a detailed review of your return.

Report All Income, Including Cash Earnings

Regardless of how you earn income from gig work, it must be reported on your tax return using the Statement of Business or Professional Activities (T2125 and TP-80). Failure to declare your income may result in significant penalties. Even if your total income does not surpass the basic personal amount, reporting your earnings offers benefits. The government uses this information to assess your eligibility for federal and provincial tax credits and benefit programs, such as the GST/HST Credit and the Canada Child Benefit. Reporting your complete income also expands your contribution possibilities to investments like RRSPs or TFSAs.

Note: Occasional earnings from hobbies, such as taking photos for friends or family on specific occasions without regular compensation, do not need to be reported as self-employment income. However, consistent monetization of a hobby qualifies it as a business, requiring income reporting on your tax return.

Maximize Deductions by Claiming Work-Related Expenses

Did you know that you may be eligible to claim work-related expenses to reduce your tax liabilities? Depending on the nature of your gig, certain expenses may qualify for deductions on your return. For example, ride-sharing drivers may include vehicle maintenance costs or the provision of supplies for passengers. If you rent out your home, expenses like guest-related supplies or cleaning services might be eligible for claims. To determine the specific expenses you can deduct, consult an H&R Block office near you, where our Tax Experts can provide guidance.

Also read: Tax Credits Unveiled: Leveraging Incentives in Corporate Tax Returns

Understanding GST/HST Registration Requirements

When your gig income exceeds $30,000, it becomes necessary to register for a GST/HST number and charge your clients accordingly. Here are four scenarios to consider:

1. Immediate GST/HST Registration: If you anticipate exceeding the $30,000 threshold soon, obtaining a GST/HST number from the beginning allows you to reclaim any GST/HST paid on business expenses, particularly startup costs.
2. Surpassing $30,000 in 90 Days: If your earnings unexpectedly exceed $30,000 within a specific three-month period, you are no longer considered a small supplier from the day of the sale that pushed you over the limit. Consequently, you must charge GST/HST on that sale and subsequent ones within 29 days of that particular transaction.
3. Gradual Growth Beyond $30,000: In cases where your revenue steadily grows and exceeds $30,000 over consecutive quarters (four or fewer), you remain a small supplier until the end of the fourth quarter plus one additional month. However, from the first day of the following month, you must charge GST/HST and have 29 days to register accordingly.
4. $30,000 in Two Consecutive Quarters: If your business surpasses $30,000 within two consecutive calendar quarters, you maintain small supplier status for one month after crossing the threshold. Starting from the first day of the subsequent month, GST/HST must be charged, and you have 29 days to register.

Note: Ride-sharing drivers (including Uber, Lyft, and Eva) in all provinces must promptly register for a GST/HST number. In Québec, drivers must also register for QST.

Considerations for Side Gigs and Full-Time Jobs: Understanding Taxes and Deadlines

Impact of Your Full-Time Job

It’s important to note that your full-time job does not directly influence how you report income from side gigs. Additionally, the income from your full-time job does not count towards the $30,000 threshold for GST/HST registration.

Tax Bracket and Potential Changes

Having multiple income sources, including self-employment, may place you in a different tax bracket. Consequently, you might be required to pay more taxes compared to the previous year. It’s crucial to be aware of this possibility and plan accordingly.

Extended Deadline for Self-Employment Income

Earning self-employment income adds complexity to your tax situation, but the CRA and Revenu Québec provide some additional time for filing. The deadline for filing your return is June 15. However, if you owe federal taxes, the payment is still due on May 1, 2023. Québec residents with a provincial tax balance must pay by the same date.

Filing Together as Spouses

If you and your spouse are preparing your tax returns together and only one of you is self-employed, you can still file both returns by June 15. However, ensure that any balance owing is paid by May 1.

Also read: Understanding the Basics of Corporate Tax Returns

Late Filing and Consequences

Filing your return late can result in interest charges and penalties on the amount owed to the CRA and Revenu Québec (if applicable). For more information on the implications of late filing, refer to the H&R Block Online Help Centre article.

Audits and Self-Employment

There are certain actions that self-employed individuals should be cautious about, as they could potentially trigger an audit.