44% of Canadian gig workers won’t declare side hustle income during tax season

As more Canadians take up creative side gigs to make ends meet, a new survey suggests some may not fully understand the tax implications of having a side hustle.

The survey, conducted by H&R Block Canada, found that 44 per cent of Canadian gig workers are willing to risk the consequences of not claiming all their income this tax season as costs of living continue to rise.

• 85% of Canadians are concerned their income is not keeping pace with inflation
• 28% of adult Canadians report taking on a gig job to boost their incomes (up from 13% in 2022)
• 74% of gig workers say it’s a side hustle in addition to their primary employment
• 20% report taking on gig work over the last 12 months; 63% cite concerns over rising inflation as a key motivator
• 23% don’t have a clear understanding of the tax implications of gig work

From transportation and delivery services like Uber and DoorDash, homestay services such as AirBnB and Vrbo, freelance and contract work – from dog walking to construction, and marketplace platforms like Etsy and Poshmark, a whopping 28% (around 8,746, 000 Canadian adults) report taking on a job in the gig economy. This compares to 13% in 2022. According to the survey, 20% took on a gig job to boost their income over the last 12 months (35% among 18–34-year-olds). However, the study reveals that many of these gig workers are tempted not to declare all their income, as spiralling costs of living puts pressure on their financial situation.

“The survey indicates that many Canadians feel tempted to avoid declaring all their income from a side gig, and many lack an understanding of the tax implications,” said Yannick Lemay, Learning Program Lead & Tax Specialist, H&R Block Canada. “While it’s easy to think that smaller amounts may go unnoticed, by not declaring all income to the Canada Revenue Agency (CRA), Canadians face the risk of not just having to pony up for the full amount of taxes owing if they’re audited – but they’ll also be charged interest and could face substantial penalties if it’s discovered. The good news is there are literally hundreds of potential deductions and expenses that can be claimed; many of which put money back into your pocket. The gig workforce is incredibly diverse, so navigating tax-related benefits can be complex. What’s important is having a full understanding of your specific tax situation, so you don’t inadvertently leave money on the table when filing your taxes.”

For 74 per cent of Canadian gig workers, these kinds of jobs are in addition to their primary source of income, such as their full time job.

And while the gig work industry may be growing, one in five of gig workers (23 per cent) said they don’t have a strong understanding on how this kind of income needs to be filed at tax time.

Despite the fact that failing to claim all income at tax time is considered tax evasion and is a criminal offense, nearly half indicated on the survey that they are willing to risk not claiming the income from their side hustles.

It’s a concerning statistic, considering the consequences of tax evasion could mean having to pay the full amount of taxes owing, plus interest and any civil penalties assessed by the CRA, being fined up to 200 per cent of the taxes evaded, or even running the risk of a jail term of up to five years.

“The good news is there are literally hundreds of potential deductions and expenses that can be claimed; many of which put money back into your pocket,” said Lemay.

“The gig workforce is incredibly diverse, so navigating tax-related benefits can be complex. What’s important is having a full understanding of your specific tax situation, so you don’t inadvertently leave money on the table when filing your taxes.”

The survey also found that 85 per cent of Canadians are worried their income can’t keep up with the rising inflation, and 63 per cent of gig workers flag inflation as a major motivator to pick up a gig.

In fact, in the last year there’s been a surge in those working in the gig economy. In 2023, 28 per cent said they had taken up a gig job, compared to 13 per cent in 2022.

Gig working in Canada could continue to grow as another 15 per cent of survey respondents said they are considering picking up a side hustle in the gig economy in the future due to rising inflation affecting basic costs of living such as groceries and monthly rent.

Being a gig worker is like being self-employed from a tax perspective. You don’t get T4s, which means it’s even more important to keep detailed records of income and expenses along the way. Keep all records and receipts for at least 6 years; the CRA and Revenu Quebec can request a review anytime during that period. It also means taxes are not automatically deducted from your paycheque, so you need to proactively set aside funds to pay your income taxes either in monthly installments or annually by the last day of tax season, which is May 1st in 2023.

There’s no one-size-fits-all when it comes to expenses, credits, and deductions you can claim. For driver or delivery services, you can claim things like gas, car cleaning, and a portion of car maintenance and road tax. Airbnb hosts can claim expenses such as cleaning services, toiletries and snacks and potentially prorated costs such as mortgage interest payments, furnishings, property taxes and etc..

Filing gig income opens doors to credits and benefits. Canadians can only access certain provincial and territorial tax credits and benefits by filing their taxes, such as GST/ HST/ QST and the Canada Child Benefit. Even if income is below the ‘basic personal amount’ (meaning you won’t owe federal taxes on it), you need to report your earned income to qualify for a number of benefits.

You can get potential RRSP advantages. More declared income may also mean you can gain tax advantages from creating more room to contribute to your Registered Retirement Savings Plan (RRSP).

Remember gig and self-employed workers must contribute to CPP or QPP. If your income is more than $3,500, you need to contribute to the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP). Contributions are calculated based on income level. Failure to do this could lead to big regrets later in life when your CPP retirement benefits are lower due to not contributing the full amount during your working years.

Part of the article was reported by News Wire.