One of the things that came out of the pandemic was a drastic shift in employment from hybrid office arrangements to the concept of quiet quitting. Tag in the rise in the cost of everyday items and inflation putting pressure on household budgets, we are seeing a lot of people re-assessing the way they are making a living. The work world has definitely changed.
A greater number of, particularly younger, Canadians are looking for alternative income through side hustles. If you are one of them, you probably know that there are tax implications but you might still be overlooking eligible deductions or applying them improperly.
According to recent research, around 23% of Canadians, including 53% Generation Z and 34% of Millennials, are getting income from a side gig in addition to their primary employer. Based on the research, roughly 1,500 Canadians conducted, 46% of Canadian side-giggers are between 18 and 34 years old. More than 85% of Canadians with a side gig, including a vast majority of Gen Z (95%) and Millennial (91%) gig workers, cited inflation and the rising cost of living as factors in their decision to pick up a side gig.
The survey also revealed that 56% of side-gig Canadians, including 53% of Millennials and 40% of Gen Z, were very aware of how having a side hustle impacts their tax return. But there are a number of common expenses that young Canadians with side hustles might not realize they could write off.
Everyday, seemingly modest expenses such as office supplies, software subscriptions, and shipping costs are often overlooked but they add up. On the larger side, there may be expenses related to the use of their office space.
For those young Canadians taking on a work-from-home side hustle, the square footage of their home office relative to their home can matter a lot. Someone with a 1,000 square foot home office in a 5,000 square foot home, she will have used 20% of their home real estate as an office space, which means 20% of many household expenses such as heat, electricity, and insurance can be counted as a business expense.
As for young Canadians who have to move around as part of their side hustle, business travel can be written off. That includes up to 50% of the cost of meals, beverages, and entertainment.
To avoid awkward conversations with the Canada Revenue Agency (CRA), it’s best for Canadians with side hustles to be upfront with their tax filings. In a recent survey of gig workers, 49% are open to the idea of not declaring their full incomes. That decision could come back to haunt them. In instances where CRA discovers tax evasion, the CRA can hit the offenders with substantial penalties and interest, aside from ordering them to pay the back taxes owed.
Filing taxes is one thing but filing them properly is another. Side giggers’ claims can be denied because they don’t have submit sufficient supporting documentation to the tax man. In other instances, they may try claiming deductions that fall outside of what’s eligible. Further, since we are engaged in electronic tax return filing, people tend to not hold the proper support and documentation in their files. Going off your bank and credit card statements is not sufficient. Further, your records and receipts must be maintained for seven years.
I’ve seen people try to claim clothing, dry cleaning, pet care, and even personal care items as an expense, but these items cannot be written off because they are considered personal expenses by the CRA.
To avoid those tripwires, we recommend seeking our a financial advisor, tax preparers or the use of online tax software solutions that prompts users for all the information needed to support their claims. The right software can automatically flag hundreds of credits and deductions to help Canadians with side hustles make wise tax-planning decisions.
The only issue with using tax software is knowing the right questions to ask and how to correctly fill in your information. While we do not prepare tax returns, we advise clients of with general advice and assist in seeking the right way for them to have their returns prepared.
With the cost of living this high, every dollar counts. Especially for this tax season, it’s important that Canadians with side hustles are aware of all expenses, big and small, that they can write off to maximize their return. Who wants to pay more tax than necessary. Maximizing your legitimate entitlement is a wise way of Keeping Life Current.