This is part five of our five-part #TaxWeek series on everything you need to know about filing your return this year. Here's a recap of the entire series.
Side hustles are becoming increasingly popular today and for many, are a necessary means to supplement income.
Building up a business is a great way to earn extra money to help with things like paying down debt or jetting off on an international vacation.
When tax season rolls around, however, extra business income also means extra paperwork. Whether you’re a driver for a ride-sharing app or renting out your apartment on a website like Airbnb, you need to report those earnings to the government.
All of that is recorded on the T2125 form. Depending on your side hustle, there are also certain expenses you can claim.
Below, I break down some of the more popular side hustles, and the claims you can make when filing.
What you need to know if you drive for a ride-sharing app like Uber
Ride-sharing apps are increasing in popularity and can be quite lucrative for drivers — especially if you’re driving during peak hours.
The most important thing to understand is how many kilometers you’ve driven to earn an income. Companies like Uber provide a log to their drivers, so it becomes easy to figure this number out.
Once you’ve calculated your kilometers, you’ll be able to claim a portion of the expenses pertaining to your vehicle, based on the kilometers driven. If 30% of your kilometers are used to earn income, then 30% of the gasoline you’ve paid in the year would be deductible on your tax return. The same goes for repairs and maintenance.
If the company you’re working for provides you with an insurance policy, you will not be able to deduct an amount for insurance on your return.
What Airbnb renters need to know
If you’ve purchased a property for the purpose of renting, or you’re renting a room in your home, there are definite tax deductions you can take advantage of.
If you’re renting out an entire property, then all of the income and all of the expenses pertaining to this property should be included on your tax return. Things such as interest on your mortgage will be deductible against the income earned. In addition to this, utilities, property tax, repairs, and improvements to the property will be able to be included.
If you’re renting out a room, your deductions are a little more limited. You will need to include income earned from the rental property and the expenses related to that portion of your home. If the room you rent takes up 1/8th of the home, then 1/8th of the expenses related to the house can be deducted.
If you’re only renting the room every once in awhile, however, you should adjust the expenses you claim for the number of days it is being used to earn income. If you rent it out for 50 days of the year, then your expenses would be limited to 1/8th multiplied by 50 and divided by 365 days in the year.
What you need to know if you’re freelancing or blogging
Bloggers and online businesses can make a decent living on the internet. When you’re looking at what you can claim, it’s important to be honest, about what you are actually using. A lot of bloggers think their entire cell phone or laptop can be deducted from their income, but the truth is individuals should be taking out a portion of expenses for personal use. In addition, items like laptops shouldn’t be deducted as expenses, they should be included as an asset and depreciated over the life of the laptop or cellphone.
Home offices can also be claimed, but the sole purpose of the room must actually be for earning income. You are again limited to the percentage of the home that is used for earning business income.
Conferences are limited to two per year, and can only be conferences that pertain to your type of business and are in the same geographic location. Sorry, you probably can’t go to Hawaii.
Meals/entertainment is another expense that is commonly confused by bloggers — only 50% is deductible on your return, and the expense must relate to business activities.
At the end of the day, any claim you make to the Canada Revenue Agency (CRA) has to be made to earn business income and must have backup to support the claim. If you can reasonably show the CRA why you are deducting it, you will be in the clear. If you don’t think you can provide backup for the amount you want to claim, it might be better to be safe, than sorry.
About the author
Janine Rogan is a personal finance writer, speaker and tax specialist from Calgary. She has recently completed her CPA designation and shares her financial knowledge on her website. Beyond the numbers, Janine enjoys working with individuals and small businesses to help them create a financial plan that allows them to grow their wealth and achieve financial freedom.