From transportation and delivery services like Uber and DoorDash, homestay services such as AirBnB and Vrbo, freelance and contract work – from dog walking to construction, and marketplace platforms like Etsy and Poshmark, a whopping 28% (around 8,746, 000 Canadian adults) report taking on a job in the gig economy. This compares to 13% in 2022. According to the survey commissioned by H&R Block, 20% took on a gig job to boost their income over the last 12 months (35% among 18–34-year-olds). However, the study reveals that many of these gig workers are tempted not to declare all their income, as spiralling costs of living puts pressure on their financial situation.
“The survey indicates that many Canadians feel tempted to avoid declaring all their income from a side gig, and many lack an understanding of the tax implications,” said Yannick Lemay, Learning Program Lead & Tax Specialist, H&R Block Canada. “While it’s easy to think that smaller amounts may go unnoticed, by not declaring all income to the Canada Revenue Agency (CRA), Canadians face the risk of not just having to pony up for the full amount of taxes owing if they’re audited – but they’ll also be charged interest and could face substantial penalties if it’s discovered. The good news is there are literally hundreds of potential deductions and expenses that can be claimed; many of which put money back into your pocket. The gig workforce is incredibly diverse, so navigating tax-related benefits can be complex. What’s important is having a full understanding of your specific tax situation, so you don’t inadvertently leave money on the table when filing your taxes.”
Draw of the gig economy: Among gig workers, almost two-thirds (63%) took on a side hustle due to the rising cost of living and inflation this year. A further 15% of Canadians say they’re thinking about taking on a side hustle in the future.
Canadians tempted not to declare all income from their side hustle: Overall, 85% of Canadians are concerned that their income is not keeping pace with increasing costs of living. Of those that currently have a side hustle, nearly half (49%) say they’d be willing to risk not declaring ‘all’ their related income; 44% would be willing to risk not declaring ‘any’ of their side hustle income. It’s important to know that the CRA takes failure to report all income very seriously with potential substantial penalties. Bottom-line – not reporting all income at tax filing time is considered tax evasion and is a criminal offence in the eyes of the law.
Income boost versus primary source of income: The majority (74%) of gig workers say it’s a side hustle in addition to their primary source of income. This compares to 26% who report that gig work is their primary employment. Interestingly, the level of disclosure of gig workers to their primary employer is evenly split, with 51% who say their employers aren’t aware of their side hustle versus 49% who report they’ve made their employer aware.
Lack of understanding around gig job tax implications: More than 1-in-5 gig workers (23%) indicate they don’t have a clear understanding of the tax implications of having a gig job. This might include the many deductions they’re entitled to or tax credits and benefits. For others, there may be a lack of understanding of how it works when you have two different streams of income or where the line is between having a side hustle as a gig worker versus being a business owner.
As the gig workforce continues to explode, H&R Block points to key tax considerations:
No T4 – so there’s more onus on you: Being a gig worker is like being self-employed from a tax perspective. You don’t get T4s, which means it’s even more important to keep detailed records of income and expenses along the way. Keep all records and receipts for at least 6 years; the CRA and Revenu Quebec can request a review anytime during that period. It also means taxes are not automatically deducted from your paycheque, so you need to proactively set aside funds to pay your income taxes either in monthly installments or annually by the last day of tax season, which is May 1st in 2023.
Understand all deductions and credits you’re entitled to: There’s no one-size-fits-all when it comes to expenses, credits, and deductions you can claim. For driver or delivery services, you can claim things like gas, car cleaning, and a portion of car maintenance and road tax. Airbnb hosts can claim expenses such as cleaning services, toiletries and snacks and potentially prorated costs such as mortgage interest payments, furnishings, and property taxes. The list goes on!
Filing gig income opens doors to credits and benefits: Canadians can only access certain provincial and territorial tax credits and benefits by filing their taxes, such as GST/ HST/ QST and the Canada Child Benefit. Even if income is below the ‘basic personal amount’ (meaning you won’t owe federal taxes on it), you need to report your earned income to qualify for a number of benefits.
Potential RRSP advantages: More declared income may also mean you can gain tax advantages from creating more room to contribute to your Registered Retirement Savings Plan (RRSP).
GST/ HST/ QST considerations: If your gig earnings exceed $30,000, you’ll need to register for a GST/ HST/ QST number. If you’re a ridesharing driver, you’ll need to register regardless of your income.
Gig and self-employed workers must contribute to CPP or QPP: If your income is more than $3,500, you need to contribute to the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP). Contributions are calculated based on income level. Failure to do this could lead to big regrets later in life when your CPP retirement benefits are lower due to not contributing the full amount during your working years.