Gig work is very appealing to those who don't like the idea of a long commute and 9-5 in an office cubicle. Gig or freelance work gives workers the freedom to work on their own schedule without being tied to a specific employer and many do gig work to earn extra income in addition to their full time employment. Covid-19 has changed the way that people work, many have lost their jobs and have had to become part of the gig economy as delivery drivers and in other jobs.
Becoming self employed comes with additional tax issues to those full time employed workers have to contend with, and it is important that gig workers understand these issues so that they do not create problems with the CRA. Here are three things it is important that gig economy workers need to know:
Educate Yourself - you need as much tax advice as you can get. Adding additional income to your regular employment income could put you into a completely different tax bracket increasing your income tax bill and possibly impacting the various credits that your family might be receiving. It is therefore important that you are aware of your tax planning options and if you are not sure you should consult an expert in financial planning or accounting.
Understand your Employment Status - are you earning extra income as a part-time employee or are you self-employed? If you are an employee the tax rules are much simpler, you will receive a T4 from your employers and will usually have tax deducted. However you need to remember that your employers will only deduct tax on the amount earned with them so when both incomes are combined you may owe additional tax to that being withheld. You will have any overpayments on CPP or EI contributions refunded.
Income from Self-employment earnings - the rules for income earned from self-employment are more complicated as you are in fact operating a part-time business or rental operation. It is a total misconception that money earned for driving for Uber or renting a room on Airbnb is tax free. Many people think that the sideline income reduces their personal expenses and is not taxable, but any time you take in money in return for providing a service it is usually taxable.
However on the plus side expenses and deductions can reduce your tax bill. However you have to be careful that the expenses that you claim are reasonable compared to the income you are earning. For example if you are claiming car expenses as a ride-share driver you have to pro-rate them based on the ride share mileage compared to your total mileage. To make things more complicated, if you earn more than $30,000 from your side gig then you may need to charge GST and pay quarterly GST tax instalments.
For people new to working part-time in the gig economy it is very important that they understand the tax implications as it might be new to them. Again if you are not sure how to complete your tax return and what expenses you can claim you need to consult a professional to avoid making any disastrous mistakes.
From an article by Sophie Nicholls Jones