Side Hustle Tax Basics
What Counts as Side Hustle Income
| Activity | Taxable? |
|---|
| Freelancing | Yes |
| Driving Uber/DoorDash | Yes |
| Selling on Etsy/eBay | Yes |
| Renting on Airbnb | Yes |
| Tutoring | Yes |
| Dog walking | Yes |
| Online courses | Yes |
| Consulting | Yes |
The Rule
All income is taxable. Report everything.
How It’s Taxed
Self-Employment Income
| Feature | Details |
|---|
| Added to | Other income |
| Tax rate | Your marginal rate |
| Deductions | Business expenses |
| Forms | T2125, T1 |
Example
| Employment Income | Side Hustle | Total |
|---|
| $60,000 | $15,000 | $75,000 |
Taxed at combined income rate.
Reporting Side Income
Where to Report
| Form | Purpose |
|---|
| T2125 | Statement of Business Activities |
| T5013 | If in partnership |
| Schedule C | Part of T1 return |
| Item | Details |
|---|
| Gross income | Total revenue |
| Expenses | Itemized |
| Net income | Revenue minus expenses |
| Business description | What you do |
Deductible Expenses
Common Deductions
| Expense | Examples |
|---|
| Supplies | Materials for business |
| Software | Subscriptions for work |
| Advertising | Marketing costs |
| Phone/Internet | Business portion |
| Home office | If applicable |
| Vehicle | Business use portion |
| Professional fees | Accounting, legal |
| Bank fees | Business account |
| Insurance | Business coverage |
The Test
Is the expense directly related to earning income?
Home Office Deduction
Two Methods
| Method | How |
|---|
| Detailed | Calculate actual costs × business % |
| Simplified | CRA flat rate (if available) |
Detailed Calculation
| Step | Action |
|---|
| 1 | Calculate workspace square footage |
| 2 | Divide by total home square footage |
| 3 | Apply % to eligible expenses |
Eligible Expenses
| Renter | Homeowner |
|---|
| Rent | Mortgage interest |
| Utilities | Utilities |
| Insurance | Insurance |
| Internet | Internet |
| Property tax |
Example
| Calculation | |
|---|
| Workspace | 100 sq ft |
| Home total | 1,000 sq ft |
| Business use % | 10% |
| Annual rent | $18,000 |
| Deduction | $1,800 |
Plus 10% of utilities, internet, etc.
Vehicle Expenses
If Using Personal Vehicle
| Step | Calculation |
|---|
| Track business km | Keep log |
| Total km driven | Annual |
| Business % | Business ÷ Total |
| Apply to expenses | Gas, insurance, maintenance |
Deductible Vehicle Costs
| Expense | Deductible Portion |
|---|
| Gas | Business % |
| Insurance | Business % |
| Maintenance | Business % |
| Parking (for business) | 100% |
| Car washes | Business % |
Example
| Calculation | |
|---|
| Total km | 20,000 |
| Business km | 5,000 |
| Business % | 25% |
| Total car expenses | $8,000 |
| Deduction | $2,000 |
Uber/DoorDash
| Item | Treatment |
|---|
| Income | Report all |
| Vehicle expenses | Deduct business % |
| Phone | Deduct business % |
| Supplies | Water bottles, bags |
Etsy/Online Selling
| Item | Treatment |
|---|
| Sales | Report gross |
| Platform fees | Deduct |
| Shipping costs | Deduct |
| Materials | Deduct |
| Inventory | Different rules |
Airbnb
| Item | Treatment |
|---|
| Rental income | Report all |
| Cleaning | Deduct |
| Supplies | Deduct |
| Platform fees | Deduct |
| Property expenses | Proportional |
GST/HST Requirements
When to Register
| Threshold | Action |
|---|
| Under $30,000/year | Voluntary |
| Over $30,000/year | Mandatory |
If Registered
| Requirement | Details |
|---|
| Collect GST/HST | On taxable services |
| File returns | Quarterly or annually |
| Claim ITCs | Input tax credits |
Small Supplier
| Under $30K | No GST/HST required |
|---|
| Can still register | To claim ITCs |
Quarterly Installments
When Required
| Situation | Installments |
|---|
| Tax owing $3,000+ | Current and prior year |
| Side hustle no withholding | May need |
How to Pay
| Due Date | Quarters |
|---|
| March 15 | Q1 |
| June 15 | Q2 |
| September 15 | Q3 |
| December 15 | Q4 |
Record Keeping
What to Keep
| Record | Why |
|---|
| Income receipts | Prove revenue |
| Expense receipts | Prove deductions |
| Mileage log | Vehicle expenses |
| Bank statements | Support transactions |
| Contracts | Business agreements |
How Long
| Records | Keep For |
|---|
| Tax records | 6 years |
| Business records | 6 years |
| Some | Longer if dispute |
Tax Savings Example
Without Deductions
| Side Hustle Income | $20,000 |
|---|
| Tax at 30% rate | $6,000 |
With Deductions
| Income | $20,000 |
|---|
| Home office | -$1,500 |
| Vehicle | -$2,000 |
| Supplies | -$500 |
| Software | -$300 |
| Phone/Internet | -$400 |
| Net income | $15,300 |
| Tax at 30% | $4,590 |
| Tax saved | $1,410 |
Common Mistakes
Avoid These
| Mistake | Problem |
|---|
| Not reporting | CRA finds out anyway |
| Not tracking expenses | Miss deductions |
| Personal expenses | Not deductible |
| No records | Can’t prove deductions |
Tips for Success
Best Practices
| Practice | Benefit |
|---|
| Separate bank account | Easy tracking |
| Track mileage | Real-time logging |
| Keep all receipts | Digital photos OK |
| Quarterly check-in | No surprises |
| Set aside 25-30% | For taxes |