How to Claim Side Jobs on Taxes in Canada?

Side gigs go a long way in earning extra income.

If you’re one of those busy workers, you may be wondering how to claim side jobs on taxes in Canada.

Here’s everything you need to know.

Is Your Side Hustle Taxable?

All side hustles in Canada –whether it’s an online freelance job, a small business, or contract work – are subject to tax, including gigs from a foreign employer.

That’s because all income in the country is taxable, regardless of the amount. 

This includes side gigs like:

• Food and groceries delivery 
• Uber
• Freelance photography
• Freelance writing and graphic design
• Renting out property
• Selling products and crafts online through Etsy
• Online tutoring 

What Taxes Are You Required to Pay?

Whether you’re earning income from a side gig or you’re self–employed, you’ll need to pay two different taxes:

• Personal income tax (self-employment tax)
• Contributions to the Canadian Pension Plan (CPP)

In addition to these, you can also contribute to the Employment Insurance (EI) program. 

The EI program is not mandatory for self-employed workers, but you can opt-in for access to employment insurance special benefits, such as parental, maternity, family caregiver, and compassionate care benefits.

To get these benefits, you need to pay $1.58 for every $100 you earn, up to a maximum of $952.72. 

Starting in 2023, the rate will jump to $1.63 per $100 and a maximum annual premium of $1,002.45.

How To Calculate your Self-Employment Taxes

To calculate self–employed taxes in Canada, you’ll first have to figure out the amount of your taxable income. 

For that, you need to know the exact amount of:

(1) Your self-employment income.

(2) Your business expenses.

Once you do, subtract the business expenses from the income and you’ll get your taxable income.

For example, if you earned $90,000 and spent $20,000 on eligible business expenses, your taxable income would be $70,000. 

You can then use an income tax calculator, like Wealthsimple’s tax calculator, to calculate how much you owe in taxes. 

If you want to do the math by yourself, you’ll need to check what federal tax bracket you fit in.

Taxable rates for 2022

For the example above, you would owe $14,350 in personal income tax.

Below, you can check the taxable rates for the following 2023 year.

Taxable rates for 2023

Note that the self-employed tax deadline for 2023 is April 30, 2023. You can submit your income tax return a little later– until June 15.

Worth noting: There are many ways you can save on taxes. Also, certain amounts that are tax-deductible, like charitable donations.

How to Calculate CPP contributions?

To calculate your CPP contributions, you need to subtract your business expenses from your total business revenue. Then, take the basic exemption amount, $3,500, off that number and take %.10.9 of what’s left. 

The result is your CPP contributions.

When Should You Register for a GST/HST Number?

Under Canadian law, you’re required to register for a GST/HTS number if your income is above the Small Supplier Threshold, which is $30,000 over four consecutive calendar quarters. 

If your business generates less than $30,000 in that period, you don’t have to worry about  getting a GST/HST number. You can still voluntarily register if you make taxable sales, leases, and other supplies in Canada.

The only exception to this rule are taxi operators and riding-sharing drivers. They have to register for a GST/HTS number regardless of how much they make.

Worth noting: Registering for a GST/HTS number is done voluntarily. If you don’t register yourself, you will face hefty penalties.

If you exceeded the threshold in one calendar year, you’ll need to register on the day of the supply that pushed you over it and charge GST/HTS on that supply too. If not, you’ll have until next month to register and start charging GST/HTS as soon as you do.

What Business Expenses Can You Claim?

If your side hustle in Canada comes with certain costs, you can deduct expenses you incur for your business or gig.

These can include:

• Auto expenses and mileages
• Business interest and bank fees
• Annual phone and internet bills, only business related, 100% deductible
• Meals and entertainment services provided to clients and employees, 50% off 
• Office supplies and equipment
• Shipping costs
• Marketing and advertising materials
• Business insurance
• Private Medical insurance Premiums
• Accounting
• Charitable Contributions
• Child Care
• Retirement Contributions

To see the full list of deductible and non-deductible business expenses, visit the official CRA website.

How Can You Track Your Expenses?

Tracking your business expenses is crucial to managing your cash flow. 

Being on top of your books means you’ll know exactly how much you earn, how much you’ll need to pay in tax, and what expenses are tax-exempt. 

The best way to track business expenses is to open a separate bank account for your business and pay everything through it. 

You can also:

• Keep a spreadsheet of all business expenses and your income daily.
• Store your receipts in a safe place or scan them and store them in folders on your PC.
• Use online business apps which are specifically designed to help out self-employed individuals to keep a track of their expenses.

Worth noting: It’s best to keep all business-related documents for up to 6 years.

Conclusion 

Having side hustles in Canada has many benefits but it also comes with tax implications. It’s important to learn the laws regarding the taxable income from your side gigs and pay your taxes in a timely manner. 

Hopefully, this article gave you a clear understanding of how taxable income works in Canada and what to expect when filing your taxes.