Preparing for tax season: Bruce Ball, vice president of Taxation at CPA Canada
A new survey from H&R Block Canada finds nearly three-quarters of Canadians with part-time gigs also have full-time jobs.
The survey also finds 44 per cent of those gig workers don’t plan to report that extra income to the Canada Revenue Agency (CRA).
Failing to claim all income is a criminal offence that could result in fines and ultimately jail time, but following the rules has benefits. A qualified tax professional can help maximize those benefits but here are the basics:
FILE AS A BUSINESS
First, it’s important to understand that a side gig is considered a business entity for tax purposes and requires a separate filing in addition to your basic T1 personal return.
In most cases, the CRA requires a T2125 Statement of Business or Professional Activities, which includes a tally of total income generated from the business during the year and direct business expenses that qualify as deductions such as office expenses, tools and equipment, advertising, meals and travel.
HOME OFFICE DEDUCTIONS
The mass migration to home offices during the pandemic prompted the CRA to introduce a simplified deduction of up to $400, which remains for the 2022 tax year. The Simplified Temporary Flat Rate Method permits a tax deduction of $2 a day for those who work from home more than half of their work time over a period of at least four weeks in a row.
The deduction allows taxpayers to subtract up to $400 from their 2022 taxable income.
The method is simple because no receipts or documentation are required, but those who have been keeping track of their expenses throughout the year could find the cost of running a home office was much higher than $400.
The traditional method, known as The Detailed Method, permits a portion of home utilities including electricity, heat, water, insurance, property taxes, mortgage interest, and repairs and maintenance to be deducted.
The portion is based on the square footage of the home office in relation to the total square footage of the home. If, for example, the office space is one-fifth of the home, twenty per cent of eligible household expenses can be deducted from the business income.
To help determine which method would provide the biggest tax break for you, the CRA provides a calculator on its website to add up eligible expenses.
In addition to home office expenses, Canadians who use their own vehicles to generate income can deduct the work-related portion of costs. Those expenses include repairs and maintenance, vehicle insurance, licence fees, fuel, lease or depreciation, if you own the vehicle.
Tax experts say it is essential that people claiming vehicle expenses document their usage and expenses in a logbook. You need to be able to substantiate any of the claims that you make. If your apportionment of your vehicle expenses is 60 per cent, for example, you need to be able to support that. The way to support it is to maintain a logbook, which requires individual entries of each business trip; the date, destination, purpose, distance in kilometres and maintenance costs for the entire year.
They suggest recording the vehicle’s odometer reading at the beginning and end of each year.