Side Hustle Tax Basics
What Counts as Side Hustle Income
| Activity |
Taxable? |
| Freelancing |
Yes |
| Driving Uber/DoorDash |
Yes |
| Selling on Etsy/eBay |
Yes |
| Renting on Airbnb |
Yes |
| Tutoring |
Yes |
| Dog walking |
Yes |
| Online courses |
Yes |
| Consulting |
Yes |
The Rule
All income is taxable. Report everything.
How It’s Taxed
Self-Employment Income
| Feature |
Details |
| Added to |
Other income |
| Tax rate |
Your marginal rate |
| Deductions |
Business expenses |
| Forms |
T2125, T1 |
Example
| Employment Income |
Side Hustle |
Total |
| $60,000 |
$15,000 |
$75,000 |
Taxed at combined income rate.
Reporting Side Income
Where to Report
| Form |
Purpose |
| T2125 |
Statement of Business Activities |
| T5013 |
If in partnership |
| Schedule C |
Part of T1 return |
| Item |
Details |
| Gross income |
Total revenue |
| Expenses |
Itemized |
| Net income |
Revenue minus expenses |
| Business description |
What you do |
Deductible Expenses
Common Deductions
| Expense |
Examples |
| Supplies |
Materials for business |
| Software |
Subscriptions for work |
| Advertising |
Marketing costs |
| Phone/Internet |
Business portion |
| Home office |
If applicable |
| Vehicle |
Business use portion |
| Professional fees |
Accounting, legal |
| Bank fees |
Business account |
| Insurance |
Business coverage |
The Test
Is the expense directly related to earning income?
Home Office Deduction
Two Methods
| Method |
How |
| Detailed |
Calculate actual costs Γ business % |
| Simplified |
CRA flat rate (if available) |
Detailed Calculation
| Step |
Action |
| 1 |
Calculate workspace square footage |
| 2 |
Divide by total home square footage |
| 3 |
Apply % to eligible expenses |
Eligible Expenses
| Renter |
Homeowner |
| Rent |
Mortgage interest |
| Utilities |
Utilities |
| Insurance |
Insurance |
| Internet |
Internet |
|
Property tax |
Example
| Calculation |
|
| Workspace |
100 sq ft |
| Home total |
1,000 sq ft |
| Business use % |
10% |
| Annual rent |
$18,000 |
| Deduction |
$1,800 |
Plus 10% of utilities, internet, etc.
Vehicle Expenses
If Using Personal Vehicle
| Step |
Calculation |
| Track business km |
Keep log |
| Total km driven |
Annual |
| Business % |
Business Γ· Total |
| Apply to expenses |
Gas, insurance, maintenance |
Deductible Vehicle Costs
| Expense |
Deductible Portion |
| Gas |
Business % |
| Insurance |
Business % |
| Maintenance |
Business % |
| Parking (for business) |
100% |
| Car washes |
Business % |
Example
| Calculation |
|
| Total km |
20,000 |
| Business km |
5,000 |
| Business % |
25% |
| Total car expenses |
$8,000 |
| Deduction |
$2,000 |
Uber/DoorDash
| Item |
Treatment |
| Income |
Report all |
| Vehicle expenses |
Deduct business % |
| Phone |
Deduct business % |
| Supplies |
Water bottles, bags |
Etsy/Online Selling
| Item |
Treatment |
| Sales |
Report gross |
| Platform fees |
Deduct |
| Shipping costs |
Deduct |
| Materials |
Deduct |
| Inventory |
Different rules |
Airbnb
| Item |
Treatment |
| Rental income |
Report all |
| Cleaning |
Deduct |
| Supplies |
Deduct |
| Platform fees |
Deduct |
| Property expenses |
Proportional |
GST/HST Requirements
When to Register
| Threshold |
Action |
| Under $30,000/year |
Voluntary |
| Over $30,000/year |
Mandatory |
If Registered
| Requirement |
Details |
| Collect GST/HST |
On taxable services |
| File returns |
Quarterly or annually |
| Claim ITCs |
Input tax credits |
Small Supplier
| Under $30K |
No GST/HST required |
| Can still register |
To claim ITCs |
Quarterly Installments
When Required
| Situation |
Installments |
| Tax owing $3,000+ |
Current and prior year |
| Side hustle no withholding |
May need |
How to Pay
| Due Date |
Quarters |
| March 15 |
Q1 |
| June 15 |
Q2 |
| September 15 |
Q3 |
| December 15 |
Q4 |
Record Keeping
What to Keep
| Record |
Why |
| Income receipts |
Prove revenue |
| Expense receipts |
Prove deductions |
| Mileage log |
Vehicle expenses |
| Bank statements |
Support transactions |
| Contracts |
Business agreements |
How Long
| Records |
Keep For |
| Tax records |
6 years |
| Business records |
6 years |
| Some |
Longer if dispute |
Tax Savings Example
Without Deductions
| Side Hustle Income |
$20,000 |
| Tax at 30% rate |
$6,000 |
With Deductions
| Income |
$20,000 |
| Home office |
-$1,500 |
| Vehicle |
-$2,000 |
| Supplies |
-$500 |
| Software |
-$300 |
| Phone/Internet |
-$400 |
| Net income |
$15,300 |
| Tax at 30% |
$4,590 |
| Tax saved |
$1,410 |
Common Mistakes
Avoid These
| Mistake |
Problem |
| Not reporting |
CRA finds out anyway |
| Not tracking expenses |
Miss deductions |
| Personal expenses |
Not deductible |
| No records |
Can’t prove deductions |
Tips for Success
Best Practices
| Practice |
Benefit |
| Separate bank account |
Easy tracking |
| Track mileage |
Real-time logging |
| Keep all receipts |
Digital photos OK |
| Quarterly check-in |
No surprises |
| Set aside 25-30% |
For taxes |