How to navigate the tax code if you’re a gig economy worker
Whether it’s to supplement their income or turn a passion project into a business, a growing number of young Canadians are turning to the gig economy to earn extra money. This prompts the Canada Revenue Agency (CRA) to pay greater attention to potentially underreported tax returns from Etsy merchants, Uber drivers, social media influencers and others.
According to an Abacus poll conducted for the Direct Sellers Association of Canada, almost a third of Canadians have worked in secondary jobs during the pandemic, a trend that is expected to increase.
“There’s never been a better time to create a side hustle than now,” said Griffin Milks, 25, from Ottawa. “In the digital age, literally anyone can do it right from their phone.”
Milks quit his government job to focus on his YouTube channel, which has grown to 85,000 subscribers over the past two years. He teaches stock market and real estate investing and has bought or flipped over ten properties in the Capital Region.
“If you get a lot of traffic, it’s not out of the question that you could be making tens of thousands of dollars a month or even more,” he said. According to Milks, content creators can earn between $10,000 and $15,000 in additional annual revenue with two posts a week while growing subscribers.
Jessica Moorhouse quit her full-time job in marketing to start her More Money podcast which now has over two million downloads.
“I realized I was excited to come home from work and work on my business,” she said.
Moorhouse started educating others about personal finance via her blog and social media a decade ago, but decided she wanted to reach a wider audience by offering online courses and making video tutorials on YouTube. . “If I create a course that answers almost all of your questions and shows you how to do it, I think that’s a better use of my time,” she said.
One of these video tutorials explains how to register for a GST/HST account if you are running a side business. If your procurement costs exceed $30,000 for the year, the CRA requires businesses to register, collect, and pay GST/HST on all taxable sales from online activities. This is a requirement for all Uber drivers, who fall under the CRA’s definition of a taxi business.
“Our tax system is really based on the honor system,” said Brian Quinlan, partner at Toronto accounting firm Campbell Lawless LLP. “I think everyone knows they should be paying taxes…whether they are or not is another question.”
The CRA said in an emailed statement that it “leverages commercial intelligence from internal and external sources to assist in the identification of high-risk cases in the platform economy.”
This includes using the No Name Person Requirements (UPR), a court-authorized process that grants the CRA access to third-party information (such as a bank or real estate developer) to verify material transactions.
While such compliance initiatives target the “bigger fish,” Quinlan warns that the tax department can seek non-compliance from sole proprietors. “If you have a house in a [certain] zip code and reporting only $10,000 of income, that’s often a trigger,” he said.
Quinlan, who has served wealthy clients during his 40-year accounting career, said good record-keeping is essential, no matter what 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.
Milks and Moorhouse both enlist the help of an accountant to file their taxes, but for first-time scammers, they recommend having a separate bank account to capture business transactions and better track tax-deductible business expenses like l broadband internet and website domain costs. which are often overlooked.
Moorhouse recommends starting with accounting software like FreshBooks and leveraging insights from the H&R Block and TurboTax blogs.
Tax reporting can be confusing for social media influencers whose sources of income can range from ads and sponsorships to product endorsements and speaking engagements. Non-cash items like gifts should be valued appropriately.
“It’s kind of a gray area,” Milks said. “If you are a fashion [blogger]i don’t really know how [the CRA] can count gifts as income because you can’t go to the store and get groceries with a sweater.
Moorhouse follows a rule of thumb advised by its accountant: if you can prove beyond doubt that an item is necessary to operate or expand your business, then it can be claimed as a business expense. “For example, if you bought a coffee because you were going to work in a coffee shop, you didn’t need that coffee,” she said. “Unless you take a picture of it.
Cathy Miyagi is a segment producer at BNN Bloomberg based in Vancouver, and is also a Chartered Professional Accountant (CPA, CMA)