Have a side job? Make sure you’re really bringing in extra money after tax
Updated March 8, 2019
Last year was an eventful one for Manoj Gortha, a 31-year old financial planner. In the span 12 months, his brother got married, his grandmother passed away, his dad celebrated his retirement and his mom turned 60.
Each occasion required a trip from Gortha’s home in Toronto to his native India, which would have quickly depleted his savings just when he was hoping to put a down payment on a new condo.
So in April Gortha, who already had a full-time job at a financial institution, turned to Uber.
Driving mostly on weekends, he put in 90 hours in 2016, which netted him $5,404 in revenue. Of that, Uber took $1,310, leaving $4,094.
Now that he has bought a house, he said, he plans to use his side-hustle to rebuild his savings. The goal is to make $200 per week, which he should be able to do by driving just eight hours a week on Saturday nights, when demand for Uber cars is highest and prices often spike (something known as surge pricing).
“I like it,” he said, “Uber helped me meet my needs.” But talking to Global News on a Friday, he also added he wouldn’t work that weekend, since he had plans with friends — he also likes the freedom of taking a day off without checking in with a supervisor.
The ability to take on an extra gig to pay for vacations and treats without pillaging your savings is tempting. But how do you organize your finances and pay taxes when you’re moonlighting as an Uber driver, tutor or weekend dance teacher?
Here are some things to consider:
Is it really worth the (side-) hustle?
The first step is to figure out whether you’re really making enough to justify sacrificing weekends, evenings and holidays, warn tax accountants. Gig-economy workers, which are mostly contractors, often have a hard time telling gross from net pay. There are no payroll taxes and T4 income slips or, often, an easy way to calculate HST charges.
And although some side hustles, like dog walker and babysitter, have been around for a long time, some of the high-tech odd jobs present unexpected challenges. One Calgary-based driver for a meal-delivery service, for example, told Global News, that while the company tells drivers they will be able to supplement pay with gratuities, many customers don’t know they’re supposed to tip.
So how to make a cost-benefit calculation? First, understand how much of what you’re making will go to your contract employer, if you have one. You can also do some back-of-the-envelope math to see how much will go to taxes, based on your income tax bracket. Keep in mind, though, that your extra job could bump you into a higher bracket, which may, in and of itself, erase a good chunk of your financial gain.
WATCH: 8 things you need to know this tax season
After filing your first return, you’ll know exactly what your take home pay is, after all eligible credits and deductions.
Even that, though, doesn’t provide a full picture, argued Amanda Mills, owner of Toronto-based Artbooks, a tax preparation company. Not included is all the work that self-employed individuals typically have to put in to manage finances: sending invoices, recording payments, keeping receipts and so on.
“You still have to do it all when you have a side gig, but you get less bang for the buck than if you were a full-time freelancer,” noted Mills.
Expenses: there’s often an app for that
In the sharing economy, keeping track of money made and spent on your side gig is often a little easier. Uber, for example, provides an itemized statement showing gross earnings, the company’s cut, and kilometres travelled. Other Internet-based companies have similar, downloadable records, which can be very handy at tax time.
But there’s still a lot that Uber and other providers leave out.
“Uber keeps track of kilometres travelled while there’s a customer in the car, but what about the distance covered while I’m on my way to pick up someone or just driving around waiting for clients?” asked a Calgary-based driver who started with the service in late January.
It turns out there are other apps that can help with that. For example, TripLog, an automatic car mileage log tracker, can spare you the hustle of manually writing down how far you’ve gone for each trip, noted Daniel Toma, a Toronto-based CPA.
So if you’re just starting out in the new side gig, ask your more seasoned colleagues whether there are apps that can spare you at least some of the work of registering your expenses.
If you need to charge HST
You only need to worry about GST/HST when you make more than $30,000 a year in business income. If you already have a full-time job, chances are you won’t bring home that much with a side hustle.
Still, if you do you’ll need to register your business with the CRA as soon as you cross the $30,000 mark and start paying GST/HST on your gross revenue.
“Normally businesses would add the GST/HST to amounts billed to customers, however, Uber and other certain shared-economy providers do not provide the means to do so,” said Toma.
Uber drivers and others in a similar situation, then, generally have to subtract the GST/HST amount out of revenue, added Toma.
On the plus side, you may be able to claim the GST/HST you paid on some items needed to carry out your side gig, something known as input tax credits, added Toma. Uber drivers, for example, should be able to recover at least part of the HST paid on their phone bills, since working for the company takes up a whole lot of data.
“The net amount to be remitted to CRA is the GST/HST collected for the year, minus the input tax credits for the same period,” explained Toma.
WATCH: 6 easily-overlooked tax credits and deductions
If you already have an incorporated business
If you’re taking on a side gig as a contractor and you already have an incorporated business, it might be worth it to channel the extra income through the corporation. From a tax point of view, this usually makes sense only if you’re making enough money to leave some in the company or can split income, said Toma.
The corporate tax rate is significantly lower than the personal income tax rate, so if you can retain some funds in the company, you can defer tax on those earnings for a while, noted Toma.
As for Gortha, he doesn’t know yet exactly how much of his Uber income will be left after tax but is confident it will be enough to keep going.
Here’s how Gortha is handling his 2017 Uber taxes:
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