As the cost of living rises, many of us have found opportunities to earn extra income renting out rooms in our homes or using ride-sharing apps. That money may come in handy, but it isn’t tax-free. Julie Seberras, Senior Manager, Wealth Planning Support, TD Wealth. joins Kim Parlee to discuss what you should know about your gig economy income.
But guess what? That money is not tax-free. We have a new Ask MoneyTalk question. Julie Seberras is here to answer it. She, of course, is Senior Manager of Wealth Planning Support at TD Wealth. Julie, here's the question-- "I've been renting out the furnished basement in my home periodically on a home-sharing app. Do I have to report that income on my taxes?" I'm going to say, yeah, but you got the details.
- You got it. The short answer, absolutely, Kim, is, yes. The CRA uses the term platform economy. And that really covers off the economic activities that are facilitated through the internet or mobile applications. And they've divided this into four categories, one being the sharing economy. And this is what you mentioned here.
So this is where individuals are using their personal assets, such as their home or their car, to earn revenue, using platforms such as Airbnb and Uber. The second one would be peer to peer. And this is where individuals are selling goods and services to other individuals on platforms such as Amazon or Etsy.
We also have the gig economy. So this is short-term or contract work using platforms such as CrowdSource or Click Worker. And lastly, we have social media and those influencers using social media platforms such as YouTube, Facebook, or Instagram, and they're earning revenue from product placement, product promotion, or subscriptions. And so when you're earning income from these types of sources, there's no taxes withheld at source.
So what that means is that you're going to have to pay all of the taxes when it comes filing time. Now, one thing to note is that if your taxes owing are at least $3,000 in the current year plus one of the previous two calendar years, you're going to have to start paying your tax in installments, which means CRA is going to want their taxes in advance on a quarterly basis.
You're also going to have to contribute both the employee and employer portion of Canada Pension Plan when you remit your taxes. And so you'll want to make sure that you're keeping good records and working with a tax professional to help you with this.
- Lot to think about. What about the other side? Can you at least deduct some expenses to reduce that income like you would with any other business?
- You do get to reduce your income using those expenses. And so, essentially, any eligible expense can be claimed and deducted off of your income and benefit returns. And so when we say eligible expense, that's essentially any reasonable expense incurred for the purposes of earning income.
Now, you may not be able to claim that full expense depending on the nature of the expense. So let's say you are renting out just a room in your house or that furnished basement-- so only the proportion of the expenses that are applicable to the proportion of your house would be eligible. And this is often calculated using methods such as the total square footage of your home or the total number of rooms and then comparing that to the space used for that rental, let's say.
- What about sales tax? I know, obviously, if you run a business, HST, GST, you'd be charging remitting. I'm assuming it's probably the same for this.
- Absolutely. So CRA uses the term small supplier. And that's defined as anybody who is earning less than $30,000 of gross revenue. So if you are under that $30,000 threshold, you are not required to apply for a GST or HST account. However, there are some exceptions to this rule, which includes something like ride-sharing, which has no minimum requirement.
Regardless of the revenue that you are earning, you do need to have a GST or HST account. Once you have that account in place, you are required to charge it on all taxable goods and services. You are also eligible to deduct GST or HST from any eligible expense. And you also need to file your GST or HST return, as well as remit any that has been collected.
- So a lot to keep track of. But I would say the one thing that with all this is that platform gig, that type of thing, it's often easier to keep track of because everything's digitally tracked.
- Absolutely. And so you want to make sure that you keep really good records, especially when it comes to self-employment income, because you have these additional eligible expenses that could be questioned by CRA at any point in time.
- Julie, thanks so much. That's Julie Seberras for us from TD Wealth. And a reminder, if you want to see this question again, go to moneytalkgo.com. If you want to ask your question, send it in to email@example.com with the subject line Ask MoneyTalk and we'll get that question answered for you.