Canada’s gig economy is undergoing some major changes. Thanks to new reporting rules, many platforms will now send data about gig workers’ earnings straight to the CRA, and that could lead to changes for how workers report their earnings data.
The rise of AI-automated tools is also going to have an effect on what appears on gig workers’ tax returns.
As such, anyone who delivers or drives, sells online, or freelances part-time should be prepared before April. Here are things that you should know about the side-hustle tax crackdown and how it could affect your taxes.
Keep reading to find out one big mistake that some gig workers make and how to avoid it.
What’s going on
It used to be a lot easier to keep your side income separate from your regular work. However, the new changes mean that the CRA will get a lot more third-party data from any digital platforms that gig workers use.
The new guidelines state that certain apps need to annually report the earnings of sellers using their platform.
However, that’s not all. The CRA privacy documents mention that they’re going to start using automated risk systems to make sure that what people report matches what the platforms say.
It’s more important than ever that you’re filing correctly, which we’ll get into later.
What CRA means by platform
Platform might seem like it has a rather broad definition, but the CRA is quite specific about what it means.
The term covers any apps or websites that connect sellers to buyers for services, rentals, or selling goods. Interestingly, the term doesn’t refer to any software that sellers use only to handle payments or only to advertise.
That means workers who use Shopify or SkipTheDishes would have their earnings data reported directly to the CRA. The data includes any identification details and totals that are connected to your activity.
Canada also joined an OECD information-sharing agreement, meaning that part of the reporting data could go across borders.
What the AI-driven audit tools look like
No, the AI-based audit tools aren’t a bunch of robots making decisions. These automated systems will analyze and match data, while also trying to spot patterns in people’s earnings reporting.
How does it work? Essentially, it reviews digital records and tests transaction sets in a much larger-scale way than any human auditors could. It’s a lot more efficient this way.
What kinds of hidden income are easier to spot now
So why are they doing this? It’s mostly because the CRA wants to catch out anyone who seems to have hidden income. The agency can use the earnings data they receive from platforms and compare them to tax returns at a much faster rate than before.
Then, the automated systems can flag the files for any differences, should they appear, for closer review. But there are some things you can do to make sure that you’re not filing incorrectly, including a major mistake some people make, which we’ll look at shortly.
The compliance basics CRA expects
There’s a simple way to make sure that you’re doing the right thing. According to the CRA’s official guidance, you have to make sure that you report all of your income and keep records of your sales/purchases. It doesn’t matter how small your side gigs might be because they still count as taxable income.
That’s not to say that the CRA is expecting a lot of complicated paperwork. Far from it. Really, you need to have proof that your reported numbers match the data on your transactions or receipts.
What to track
You should make sure that all the data on your platform statements and payout records matches the expense receipts, which should also line up with your return. The digital systems will compare your transaction totals and flag inconsistencies, so make sure it’s all correct.
Better yet, you may want to keep monthly exports from apps and screenshots of summaries. These will give you a reference point to use should there be any questions during a review. But that’s not all.
Don’t mix up cash out with income
One of the most important things to remember is the difference between cash out and income. The majority of platforms will show your earnings through gross totals and fees, perhaps also net payouts.
However, the CRA is interested in the amount that comes from your activity, and not simply the amount of money you receive.
Focusing only on deposits could mean that your data doesn’t match your platform reports, and that’s going to cause you issues. Instead, you should check the full statement to avoid any confusion.
GST/HST is a separate question
Something many gig workers don’t realize is that income tax reporting doesn’t automatically include any GST/HST obligations they might have. Businesses have to register when they meet certain thresholds. Look it up on the CRA website for the latest numbers.
Even when the work began as a casual side project, you’ll need to tell the CRA yourself whether you collect and need to remit GST/HST. It doesn’t matter that a few platforms collect your taxes directly. You’re still responsible for knowing whether GST/HST registration applies, based on what you’re selling.
What happens if you realize you’ve missed income
Thankfully, the CRA isn’t going to automatically penalize you for making a mistake. Anyone who notices an issue can go through the Voluntary Disclosures Program to correct their past filings before the crackdown begins.
The program allows you to fix mistakes related to unreported earnings by updating the information. This may reduce any penalties you could receive, although it does depend entirely on your eligibility and timing.
Why you should do it before April
The most important thing to do before April is to line up your platform summaries with your bank deposits and any business expenses that you’re going to claim.
The CRA is going to compare your detailed records with your totals, so having everything together in advance will make the whole thing easier.
It’s also a good idea to keep checking in each month throughout the year. It’ll save you a lot more time, and effort, come tax season.
Sources: Please see here for a complete listing of all sources that were consulted in the preparation of this article.
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