Photo by Andrea Piacquadio from Pexels During the pandemic, many Canadians have launched a business or started doing freelance, gig or contract work —and some are dealing with business income tax reporting and self-employment tax deductions for the first time.
Nathalie Hatter is one of those with a new side hustle. A corporate travel executive who planned company getaways, she watched as her career stalled in March 2020. “As soon as Canada advised Canadians not to travel, that’s when companies had to cancel their programs,” says Hatter, who lives in Oakville, Ont.
Hatter has elderly parents, so she needed a new job that would be socially distanced and flexible—like dogwalking. She ordered business cards and handed them out to dog owners in her neighbourhood. Soon, Hatter was relying on her earlier chef’s training to bake artisanal dog treats, which she sold at weekend farmers’ markets. Pivot Dog Biscuits was born. “I was selling out every weekend,” she says.
Now, two years on, Hatter has returned to working as a travel consultant, with a very successful dog treat business on the side. She’s currently gearing up to pay taxes by the federal tax deadline of April 30. (It falls on a Saturday this year, so the Canada Revenue Agency says “on or before May 2” will be considered on time.) The filing deadline for self-employed people (and their spouses) is June 15, but any taxes owing are still due April 30 (or May 2, in 2022). “I like to get my taxes in ahead of the curve,” Hatter says.
Having a side business can bring in a lot of extra income. It’s critical to track your business expenses and keep the receipts, so you can claim tax deductions . More considerations if you’re newly self-employed: Your extra income could push you into a higher tax bracket, lead the Canada Revenue Agency (CRA) to ask that you pay taxes in installments and/or require you to register for and start charging GST/HST (more on that below).
These changes might be more than you bargained for when you launched your side venture, but planning ahead, maximizing deductions and reducing your overall income can ensure you maximize your profits while meeting your tax obligations. Here’s how to make that happen. Is your side hustle taxable?
Absolutely, unless your side hustle brings in just a couple hundred dollars a year (so it’s more of a hobby than a business). Beyond that, any business income is taxable, says Dean Paley, a Chartered Professional Accountant in Burlington, Ont.
To find out how much tax you owe, plug your income into an online tax calculator—Paley recommends Ernst and Young’s . Then add about 10% for Canada Pension Plan ( CPP ) or Québec Pension Plan (QPP) contributions. If your net self-employment income plus pensionable employment income is over $3,500, you must begin contributing to CPP/QPP—and, unlike salaried employees, you must pay both the employer and employee portions for CPP.
Sole proprietors—individuals who own a business that is not incorporated—have to report all business income on their personal income taxes using Form T2125, Statement of Business or Professional Activities. Even if the business fails to make a profit, you have to declare a loss, says Paley. “A loss gets deducted against any other income you made in that year,” he says.
If your side hustle generates sales of $30,000 or more (before expenses) within a calendar quarter or over four consecutive quarters (not necessarily a calendar year), you will have to register for a GST/HST number , as you are no longer a “small supplier” according to the CRA. It’s a good idea to get your number before you reach $30,000, or you may find yourself paying GST/HST out of pocket or facing fines. And if you wait, you’ll have to start charging your existing clients or customers 5% to 15% tax (depending on their province) once you do hit $30,000, so you may as well get them in the habit of paying that extra cost early on. What business expenses can you claim?
As a self-employed person, you can claim a wide variety of expenses related to your business. Nathalie Hatter, for example, can deduct costs related to her home office, car, payment processing system, advertising and baking supplies.
Larger purchases such as a computer, office furniture or a vehicle used for the business are considered “depreciable property.” You can’t deduct these costs entirely in the tax year you bought them, but over a number of years. Each deduction is called a capital cost allowance (CCA) . […]
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