Take care to avoid tax shock if you have a side hustle

Be prepared with records of income, expenses

M O N T R E A L • The growth of the gig economy is making it easier for Canadians to earn extra cash driving for Uber, renting out their homes on Airbnb or making crafts to sell on Etsy, but people new to the side-hustle game may be in for an eye opener when it comes to tax season, say experts.

That’s because new selfemployed workers are often ignorant about their obligation to report all income and pay the appropriate taxes and Canada Pension Plan contributions.

“Certainly when there’s a surprise tax bill at the end of the year, people are shocked,” says Bessy Triantafyllos, a tax partner with Deloitte.

While employers remit deducted taxes to the government, self-employed workers are responsible for these expenses.

The number of people working on the side has more than doubled in the last 40 years, rising to nearly one million Canadians as of 2015, says Statistics Canada.

Emilie Coulombe says the high cost of housing in urban centres has prompted young entrepreneurs like herself to work tens of hours each week on top of their regular work schedule.

The 28-year-old accountant started a business last year making baskets from recycled fibres and winter clothing from knitting or crochet.

Coulombe expects to lose money for several years, which will allow her to reduce the taxable income from her main job and receive a large refund.

But she says many people who make crafts are woefully unprepared for the business side of their exploits.

“A lot of people start into business because they like the creative side...but they don’t think about the corporate side of things,” she said in an interview.

They incorrectly believe that no taxes have to be paid because their sales are less than $30,000. In fact, all income has to be reported, but no GST has to be collected until sales reach that threshold.

She urges newbies to consult with a tax professional to fully understand the rules, including deductions that can be claimed to offset income.

Valorie Elgar, senior tax professional at H&R Block says the most common mistake self-employed workers make is not keeping proper records of income and expenses.

She said workers often fail to fully tabulate their employment expenses, including car payments, gas, insurance, fuel, repairs, utilities and property taxes based on the percentage of the car or home that is used for the business.

Elgar said the most successful moonlighters don’t realize that their second jobs could put them in a higher tax bracket.

“I think people probably don’t think about it a lot until they get to do their taxes and then they realize,” she said from Calgary.

Uber driver Mathieu Visser says he turned to an accountant when he started driving in 2014 and now keeps detailed records of his mileage and expenses.

“I have a strange book with a lot of numbers and at the end of the year I count the number of kilometres I did for Uber,” he said during a break in his schedule.

“So it needs a little organization but it’s not too hard.”

Uber has a partnership with tax advisers including Ride-sharing company Uber has a partnership with tax advisers to assist drivers.