Remind clients to declare side-hustle income

Canadians are increasingly taking jobs in the gig economy. If your client is one of them, ensure they understand the importance of declaring this income at tax time, because many Canadians may not, as data from H&R Block Canada Inc. suggests.

In a February survey commissioned by the tax preparation firm, more than one-quarter of Canadian respondents (28%) reported taking on a job in the gig economy, up from 13% in 2022.

Such jobs — all well documented by the Canada Revenue Agency — include ridesharing services such as Uber, accommodation-sharing services such as AirBnB, various freelance and contract work, third-party selling and online content creation.

Among gig workers, 63% said they took gig jobs to boost their incomes amid rising inflation and living costs, and neary half (49%) said they’re willing to risk not declaring their full incomes.

Many Canadians lack an understanding of the resulting tax implications, Yannick Lemay, tax specialist with H&R Block Canada, said in a release.

“While it’s easy to think that smaller amounts may go unnoticed, by not declaring all income to the [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,” Lemay said.

The CRA lists penalties for false reporting or repeated failure to report.

The bottom line, H&R Block said, is that “not reporting all income at tax filing time is considered tax evasion.”

The firm offered several suggestions to taxpayers with gig jobs (and the self-employed more generally), including keeping detailed records of income and expenses, and retaining those for at least six years in case of an audit.

Self-employed workers also need to proactively set aside funds to pay their income taxes, either in monthly instalments or annually by the last day of tax season (May 1 in 2023).

Workers may also be entitled to deductions and credits based on their particular circumstances.

“There are literally hundreds of potential deductions and expenses that can be claimed, many of which put money back into your pocket,” LeMay said. “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.”

Filing taxes — including reporting gig income — also opens doors to certain provincial/territorial tax credits and benefits, and the Canada Child Benefit. “Even if income is below the basic personal amount … you need to report your earned income to qualify for a number of benefits,” the release said.

It also noted that gig and self-employed workers must contribute to the Canada Pension Plan (or Quebec Pension Plan), based on income level (and assuming income is more than $3,500).

“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,” the release said.

Also, those with earnings that exceed $30,000 must register for a goods and services tax/harmonized sales tax (GST/HST) account (or Quebec Sales Tax account), and ridesharing drivers must register regardless of income, because the sales tax is to be collected on all fares.