How To Save Money On Your Taxes With A Side Hustle

Senga Bailey
August 25, 2023

The Gig Economy in the Age of COVID-19 

In the shadow of COVID-19 and successive lockdowns, the gig economy has burgeoned. Unsurprisingly, tax experts are anticipating an intense tax season. According to a recent survey by H&R Block Canada, about three out of four Canadians who hold part-time positions also retain full-time employment.

Alarmingly, about 44% of these gig workers have no intention of reporting their supplemental income to the Canada Revenue Agency (CRA). Neglecting to declare all income is a serious offense, potentially resulting in punitive fines and potential incarceration. However, adhering to tax laws can yield significant benefits. Here’s an overview:

Recognize Your Side Hustle as a Business

For taxation purposes, it’s crucial to acknowledge that your side hustle is considered a business. As such, it necessitates an additional filing separate from your T1 personal return.

Generally, the CRA stipulates that you fill out a T2125 Statement of Business or Professional Activities. This form should include your total income generated from your business during the year, along with any business expenses that qualify for deductions. These could encompass office supplies, equipment, advertising, and travel, among others, depending on the business..

Capitalize on Home Office Deductions

The proliferation of home offices during the pandemic has prompted the CRA to introduce a simplified deduction for the 2022 tax year. The Simplified Temporary Flat Rate Method allows for a tax deduction of $2 a day for those who work from home for a majority of their work time over a continuous four-week period.

However, if you’ve been meticulous about keeping track of your expenses, you might discover your home office costs significantly exceed $400. In such cases, the Detailed Method might be more beneficial, as it allows for a proportion of home expenses to be deducted, including utilities, insurance, property taxes, mortgage interest, and maintenance.

For assistance in determining which method might yield the most significant tax relief, the CRA offers a calculator on its website.

Leverage Vehicle Deductions

If your side hustle involves the use of your personal vehicle, you can also claim work-related vehicle expenses. This can include the cost of repairs and maintenance, vehicle insurance, license fees, fuel, lease or depreciation.

To validate these expenses, it’s vital to maintain a thorough logbook of your business trips, documenting details such as date, destination, purpose, distance traveled, and costs incurred. It’s also recommended to note the odometer reading at the beginning and end of each year.

With these strategies in hand, you should find navigating the taxation complexities of the gig economy far more manageable. Your side hustle’s purpose is to supplement your income, and understanding how to efficiently handle your taxes will help you retain as much of your earnings as possible.