Navigating Taxes in the Gig Economy: Understanding Tax Implications for Uber and Fiverr Income

Digital platforms like Uber, Airbnb, and Etsy have simplified the process of earning extra income on the side. However, experts emphasize the importance of diligently tracking and reporting this additional income to avoid facing consequences.

“Especially in the first year … make sure that if you’re not familiar with how to report self-employed income, seek assistance and get it right, rather than take the risk of getting it wrong. It’ll take a lot longer and cost a lot more to fix it,” advised Bruce Goudy, director of BDO Canada’s indirect tax practice.

An increasing number of Canadians are generating income from websites and apps, whether through renting on Airbnb, delivering food via Uber Eats, or offering services on Fiverr.

In December 2023, Statistics Canada reported that 927,000 individuals aged 15 to 69 had earned money from digital platforms in the previous year. This includes platforms that directly pay workers and those that connect workers with clients.

If you earn money through a digital platform, you are considered self-employed, according to Stefanie Ricchio, a chartered professional accountant and spokesperson for TurboTax Canada.

Instead of receiving a standard T4 tax form from an employer, you will need to report your self-employment income on a T2125 form when filing your taxes.

Ricchio also emphasized the importance of reporting your expenses along with your income. These expenses can cover home office costs, car maintenance, and fees paid to the digital platform—there are numerous deductions available.

“The more eligible deductions that you apply to that income, the less that tax bill is going to be when you file,” stated Ricchio.

Since taxes are generally not collected upfront on digital platform earnings, Ricchio advised setting aside around a quarter of your income to cover tax obligations when filing.

For individuals transitioning to self-employment, a significant mindset shift may be required, according to Ricchio.

Once you exceed $30,000 in earnings over four consecutive quarters, you must register for a GST/HST account, Ricchio explained, although early registration is possible.

However, for rideshare service providers, immediate registration is mandatory, as they begin charging GST, HST right away, Ricchio added.

Goudy noted the importance of closely monitoring revenues to avoid surprises, especially considering Canada’s various sales tax jurisdictions.

Canada recently implemented new reporting rules for digital platform operators, aiming to capture previously unaccounted transactions and ensure tax compliance.

Sellers may be subject to fines or penalties for non-compliance, underscoring the need for thorough reporting and compliance with obligations.

Failure to comply can result in penalties and interest on unpaid taxes, as the CRA can easily cross-check available information, Goudy warned.

Ricchio highlighted another important change concerning short-term rentals, emphasizing the implications on business deductions for unauthorized operations in designated areas.

Earnings from digital platforms in addition to regular employment income could potentially push individuals into higher tax brackets, affecting not only taxation rates but also benefits received.

Remaining aware of these implications and diligently fulfilling reporting requirements is crucial to avoid penalties and maintain compliance, Goudy stressed.