With more Canadians participating in Canada’s growing gig economy, reporting self-employment income can make tax time quite demanding. Coupled with new federal legislation that mandates gig platforms share users’ earnings of more than $2,800 with the Canada Revenue Agency (CRA), gig economy workers, freelancers and self-employed people may face more scrutiny – and potentially audits – on their tax returns.

Kelly Ho, certified financial planner and partner at DLD Financial Group Ltd. in Vancouver, says tracking all sources of income is particularly complicated for gig economy workers.

“It’s become a bit of a generalization that self-employed people are disorganized, which makes them easy targets for auditors,” she says.

Tracking income from multiple sources can be burdensome for freelancers who don’t have the proper mechanisms in place. To help her clients stay organized, Ms. Ho ensures they have separate accounts: a personal account and a business account.

“That keeps your records very clear because as soon as you start intermingling things, it looks suspicious.”

A growing gig economy

According to a February survey by H&R Block Canada, 7.4-million adult Canadians are now part of Canada’s gig economy, the vast majority through side hustles. That’s an 85-per-cent increase from just three years ago. Lina De Luca, a chartered professional accountant in Toronto, says new federal legislation has made it riskier for freelancers to omit their earnings from their tax filings.

That legislation requires digital platforms such as Uber Technologies Inc. and SkipTheDishes Restaurant Services Inc. to report information about their workers’ income to the CRA each year by Jan. 31. By requiring digital platforms to file something called an “information return,” Ms. De Luca says, this income may now be discovered by the CRA’s matching program, a process that involves reviewing all the slips on file for an individual and making sure they’ve been included and entered correctly.

Report all income to avoid audits

According to the H&R Block survey, about two-thirds of gig economy workers weren’t aware of the new rules. More than one-third were unclear of the tax implications for gig income, and about the same proportion said they still didn’t feel inclined to report all gig income after learning about the new legislation.

“The worst thing a person making extra cash through gig work could do is just not report anything,” says Ashley Brulotte, a chartered professional accountant and co-founder of Origami Professional Corp., a full-service tax firm in Edmonton. He recommends anyone making gig work income more than the $2,800 threshold to report their gross sales through the T2125 form. The benefit of reporting business activity, he says, is freelancers can then also claim expenses.

Commonly abused expenses

Of course, those expenses also have to be reported properly. In the 17 years Ms. De Luca has been practising, she’s noticed automobile mileage is an expense category the CRA often inspects closely.

“People often include travel to their office space, or clinic space, in their mileage expenses, which the CRA can disallow,” she says.

Without a good log tracking the miles a person uses to generate business – such as when a freelancer drives to meet a client – and separating those trips from personal travel, she says the CRA can disallow all mileage claimed on a person’s taxes. Ms. De Luca says there are great apps to track mileage for freelancers.

“You also want to make sure you’re keeping all of your receipts and records for up to six years,” she says, in case of an audit.

In the template Ms. De Luca gives her clients, she keeps diligent records of when, where and who an expense took place with, as well as what was discussed. Home office space, personal care expenses, travel and professional coaching are other areas Mr. Brulotte says people can be too aggressive in claiming in their taxes. Often, he sees self-employed individuals try to lower their taxes as much as possible by underreporting income and increasing their expenses, but he says there are benefits to reporting income.

“By reporting more income, that gives lenders more confidence to give you loans.”

Another benefit, he says, is income contributes to a person’s Canadian Pension Plan (CPP), which is baked into the tax return for self-employed Canadians.

“CPP is a very low-barrier way to financial planning, in lieu of preparing for retirement in some other way,” Ms. Ho says.

Stay organized to audit-proof taxes

Mr. Brulotte reminds any self-employed person who has made more than $30,000 in the past four calendar quarters (or less) to register for GST/HST, which is required by the government, to audit-proof their taxes. He also recommends documenting business expenses through an Excel spreadsheet or free software such as Wave and checking these quarterly.

Freelancers can also open a separate savings account in which they can deposit any GST/HST they collect, or pay the CRA directly through its online payment system every month, which Mr. Brulotte says can relieve a lot of self-employment stress.

“Anyone who is self-employed also wants to make sure they’re saving at least 20 per cent of their income throughout the year,” he says, to pay their income taxes when the time comes.

DANIEL REALE-CHIN –  THE GLOBE AND MAIL
PUBLISHED APRIL 2, 2025