Yahoo Finance Drive for Uber? How to declare your side hustle income at tax time
Many Canadians who participate in the sharing economy seem to be under the impression they don’t have to pay their fair share of taxes from their side hustle income.
Valorie Elgar, a tax expert with H&R Block, says she has met many Canadians confused about whether they have to declare income to the Canada Revenue Agency (CRA) from side hustles, such as being an Airbnb host, an Uber driver, or an Etsy creator.
“All of your work is taxable,” clarified Elgar in a recent phone interview with Yahoo Canada Finance. “Any income should be reported on your tax return.”
Do not try to hide any income from the CRA, warns Elgar, adding “they’re always on the lookout.” If (or more likely, when) the CRA finds out you have failed to declare income you could be fined 10 per cent of that previously undeclared income, said the tax expert.
There’s no need to fear the CRA as long you declare all of your income, whether from a traditional 9-to-5 or the new sharing economy. And, when you declare your side-hustle income you can likely minimize your tax bill, as long as you know the rules and keep very good records.
Airbnb
Last year, approximately 55,000 hosts made an average of $4,300 from renting out their house or apartment on a short-term basis in Canada, according to a company spokesperson. All of this income from property rentals should be reported on a federal tax form called a T776, Statement of Real Estate Rental.
If your side hustle has become more of a main hustle and you’ve earned more than $30,000 in the past four calendar quarters, or in any single calendar quarter, as an Airbnb host you must register for a GST number. Airbnb won’t add GST/HST to your guests’ bill, so you’ll have to ensure this is added to your rates.
To minimize your tax bill you might be able to claim expenses, such as utilities, property taxes, furniture and all new bedding items for the days when your space was being rented out. If you plan on claiming expenses on any side hustle, make sure you keep all of your receipts as proof in case the CRA comes knocking. Consider hiring a tax professional, at least the first year you’re earning extra income so you can get a handle on how much you’re obligated to pay in taxes and which expenses you can claim, advises Elgar.
Uber
Uber has about 22,000 drivers in more than 40 communities across Canada. In 2015, Uber revealed that UberX drivers travelled more than 34 million kilometres and collectively earned more than $50 million during UberX’s first year in Toronto, which worked out to an average of $3,125 per driver. All driver-partners are not technically employees, but rather independent contractors. This means that drivers for the ride-hailing service are personally responsible for claiming and paying any income from driving customers via the Uber app.
Drivers should declare all the income earned via Uber by filling out a T2125 form, Statement of Business or Professional Activities. And, if they earn more than $30,000 they must get a GST number and charge passengers for GST/HST.
Elgar recommends drivers keep a log of all expenses that one might claim, such as mileage, just in case the CRA asks for proof of those expenses.
Etsy
Etsy has about 1.6-million active sellers worldwide, according to its website. It does not break down revenue by country, but the website had US$2.39-billion in annual gross merchandise sales in 2015. As with Uber and Airbnb, Canadians selling their items via Etsy are not employees of that company, but rather considered to be independent contractors by the CRA.
Like Uber drivers, Etsy sellers should file income from their side hustle via a T2125 form and ensure to get a GST number if they earn more than $30,000 per year from selling their wares on Etsy’s website.
If you have a craft room in your home where you do your work, you might be able to claim maintenance costs, such as heating, home insurance, property taxes, and mortgage interest, said Elgar. You’ll have to prorate those costs by the amount of square footage of your home office and the amount of time per year spent working there. As with any side hustle, keep meticulous records of all sales and possible expenses and consider hiring a tax professional to help you crunch the numbers, advises Elgar.
Be prepared
To avoid a shocking tax bill, put aside a certain percentage of your side hustle income – say about 20 per cent – so that if you do owe taxes you already have the money in the bank to pay the CRA. Also, keep in mind that earning extra income on top of your 9-to-5 gig might push you into a higher tax bracket – meaning you should set aside additional money for tax season.
Taking on a side gig might seem like a great way to earn extra cash and indulge your creative side, but before taking on extra work take a bit of extra time to run the numbers to see how much you’ll actually earn, taking into account your time, use of resources such as your personal vehicle or home, and of course, paying the taxman.
