We all want to build extra income. And to do so…
We build businesses in a proper corporate structure, so we get tax deductions and pay less tax.
We invest in real estate because it creates long-term wealth.
We trade stock options because it adds short-term cash flow.
We purchase a whole life insurance policy and leverage it to grow two assets at the same time. As it provides a safety net for our kids and grows a secured tax-free asset.
We buy cryptocurrency to provide a hedge against money printing.
And, we as Canadians have to report worldwide income.
Making money is not easy, getting ahead in Canada is even harder. After all, CRA always has its hand in our pockets.
The CRA requires us to report all income we receive, subject to some exceptions.
I have talked about earning extra income before here. And you have loved it.
So, here’s an updated list of the side hustles that can potentially earn extra income, including cryptocurrency, along with the tax implications that you might think you could get away with…
Extra income earning side hustles and tax implications:
Many real estate investors commit to purchasing pre-construction homes. But they decide to assign the agreements to make a quick profit before closing.
As a result, CRA was unable to track down the assignment deals completed. They did not know if the taxpayers had reported the profit properly.
And so, CRA filed for a court order. The order forced major builders to provide a list of new home purchasers that had different names on the initial agreement of purchase and sale.
Same goes with crypto.
You can trade cryptocurrency anonymously. Some exchanges allow you to trade without confirming identity.
But… CPA Canada’s magazine Pivot October 2021 edition published an article about a man in Mississauga Ontario that used a crypto trading agency he found online to trade and lost $200,000 subsequently. Whenever this man requested for his own money back, it cost him money.
And there were also “167 counterfeit trading and cryptocurrency apps traced to a single server as part of a fraud identified by British cybersecurity firm Sophos.” Scammers created a replica iOS App Store page to trick victims to download the fake apps. Whenever the victims tried to withdraw money out, scammers locked them out of their accounts.
If you’re thinking that you can use other platforms to trade and avoid the Tax Man, be careful with all these fraudulent activities out there.
Large and reputable exchanges do require you to provide proof of identity, date of birth, name and address, as well as trading records to government agencies.
In September 2020, CRA asked a judge to force Toronto-based crypto trading platform Coinsquare to provide information about its clients since 2013.
In March 2021, CRA obtained the court order requiring Coinsquare to provide client information related to account balances that are over $20K from 2014 onwards.
And, it didn’t end there.
On April 1, 2021, US Federal Court granted Internal Revenue Service permission to get a third party to provide the IRS with information about unnamed, unknown taxpayers with potential tax liability.
The two governments formed a coalition to mutually exchange taxpayer information.
If you made money training crypto, make sure you report it on your income tax return.
If you hold more than $100K Canadian worth of assets outside of Canada, and these assets include crypto that you own on a platform outside of Canada, you also have an added obligation to report it on Form T1135 Foreign Income Verification Statement..
You might not have any income generated from holding crypto, but you still can have the reporting requirement on form T1135.
For detailed tax implications on mining, trading, and staking cryptocurrency, watch this video.
- Airbnb Income
Many investors made a heap of extra income operating multiple Airbnb properties. Most real estate investors are aware of their income tax filing obligation. However, what most people overlook are the HST implications on income collected.
Income tax implication
Most real estate investors that I work with are aware of their income tax filing obligation with respect to Airbnb.
Some investors, however, are under the impression that earning Airbnb is cost sharing when it comes down to renting out their personal residence. As a result, they decide not to report it as income.
The problem is that the line drawn between cost sharing and earning income is not clear.
At the end of the day, the money does get deposited to your bank account.
As an accountant, I would take a conservative approach, report the Airbnb income and deduct the proportional expense.
At the end of the day, you might not have a balance owing after you deduct the proportional expense against the Airbnb income.
- HST implication on rent collected
Airbnb hosts are required to collect HST when your taxable income from commercial activities is over $30K.
If you earn over $30K from all of your commercial activities combined including Airbnb service, you are required to collect HST on behalf of the government and you are required to file a HST return on a regular basis.
Just because you earned less than $30K Airbnb income, it does not mean that you don’t have HST exposure from your Airbnb income.
If you also operate a business in your name while earning Airbnb income, and the combined income of your business and Airbnb income exceeds $30,000, you might still have HST impact.
- HST implication on sale of Airbnb
When you sell a property that you operate a commercial business at, the property is considered a commercial property in the eyes of the Excise Tax Act.
If you operate Airbnb at a property 365 days of the year, you might have a HST payable when the property is converted back to a regular residential property.
You might be able to take advantage of an exception if you rent out your Airbnb for 60 days consecutively.
Make sure you consult with a qualified accountant to understand your tax implications. This can cause an unexpected cost and distress at the time of sale.
- Uber income (ridesharing, rental of bikes or boats, food deliveries)
Ever since Covid lockdown started in March 2020, I relied on Uber Eats quite a bit.
I’m grateful for all the Uber drivers out there, helping me deliver the food and contributing to help local restaurants deliver the food.
If you’re one of the Uber drivers out there, you are required to report income.
Similar to Airbnb income, you have income tax filing responsibility and HST obligation as well, depending on how much you make.
The good news is that you are eligible to deduct the portion of expenses incurred to earn the income. This includes the business portion of gas, car maintenance, insurance, lease payments or even interest on money borrowed to purchase the car.
Again, you might not end up having business income and paying taxes on it after all the eligible deductions.
Depending on the amount of income you earned, you may be required to charge HST if your income from business combined exceeds $30,000.
- Influencer on social media
We have all read the news about how much the Kardashian’s sisters charge for each Instagram post (if you don’t know, she charges approximately USD$1.26Mper post according to an article I read online).
I have no way to find out if it is true.
You might not make as much as Kylie Jenner, but you may still make some money from sponsorship and endorsement. You could even make money from producing content on YouTube!
But bear in mind that the CRA states that “all income (both monetary and non-monetary) that you earn through social media channels must be reported on your income tax return.”
You might even have HST implication as well.
If I make any money from my blog, according to CRA, I would also need to report my income as well.
So, make sure you understand your tax implication and report it accordingly.
- Reselling goods on Kijiji, eBay and Facebook MarketPlace to make a profit
Selling goods on eBay, or any platform, with the intention to make a profit is considered conducting a business. This also means that all the profit you made is considered taxable.
Now, this is old news.
In fact, the CRA already obtained a court order to get sellers’ information from eBay and PayPal back in 2007.
Similar to the Airbnb income mentioned above, you have both income tax and HST exposure when you resell goods on an online platform for profit.
At the end of the day, if you’re required to pay tax, chances are, you’re making money. Tax is the cost of doing business in our beautiful country.
Just make sure you understand how to structure your side hustles and investments in the most tax efficient manner. After all, we all want the extra income but it’s vital that we are prepared for the taxman as well!
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Your Real Estate Accountant