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Self employed? Here’s how to file taxes for a side hustle

Nathalie Hatter is one of those who have a new jostling side. A business travel executive who planned corporate getaways, she saw her career stall in March 2020. “As soon as Canada advised Canadians not to travel, that’s when companies had to cancel their programs,” says Hatter, who lives in Oakville, Ont.

Hatter has elderly parents, so she needed a new job that would be socially distanced and flexible, like walking her dog. She ordered business cards and distributed them to dog owners in her neighborhood. Soon, Hatter was relying on her chef training to make homemade dog treats, which she sold at weekend farmers’ markets. Pivot Dog Biscuits was born. “I was selling every weekend,” she says.

Now, two years later, Hatter is back to working as a travel consultant, alongside a very successful dog treat business. She is currently preparing to pay taxes before the April 30 federal deadline. (It falls on a Saturday this year, so the Canada Revenue Agency says “May 2 or before” will be considered in time.) -Employees (and their spouses) is June 15, but any tax due is still due on April 30 (or May 2, in 2022). “I like to get my taxes before the curve,” says Hatter.

Having a side business can bring a lot of extra income. It’s essential to keep track of your business expenses and keep receipts so you can claim tax deductions. Other considerations if you are a new self-employed person: your additional income could push you into a higher tax bracket, cause the Canada Revenue Agency (CRA) to ask you to pay taxes in installments and/or or require you to register and start charging GST/HST (more details below).

These changes might be bigger than you anticipated when you started your side business, but planning ahead, maximizing deductions, and lowering your overall income can ensure you maximize your profits while meeting your tax obligations. Here’s how to achieve it.

Is your secondary activity taxable?

Absolutely, unless your side hustle only brings in a few hundred dollars a year (so it’s more of a hobby than a business). Beyond that, any business income is taxable, says Dean Paley, a chartered professional accountant in Burlington, Ont.

To find out how much tax you owe, plug your income into an online tax calculator — Paley recommends Ernst and Young’s. Then add about 10% for contributions to the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP). If your net self-employment income plus your pensionable employment income exceeds $3,500, you must start contributing to the CPP/QPP and, unlike salaried employees, you must pay both the employer and employee for CPP.

Sole proprietors, that is, individuals who own a business that is not incorporated, must report all business income on their personal income tax using Form T2125, Statement of results of the activities of a company or a liberal profession. Even if the business isn’t making a profit, you should report a loss, Paley says. “A loss is deducted from any other income you made that year,” he says.

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