Participation in the sharing economy to gain additional income is fast becoming commonplace, to the point that we are seeing more of these types of services available to us every month.
Businesses have disrupted their respective industries by embracing the sharing platform, which creates new opportunities for those willing to get involved. Each day, there are new apps or programs popping up in cities across the country that make the sharing economy that much easier to operate in.
As a tax preparer, I’m getting more questions about how this income impacts a person’s tax return: “Do I need to declare this income? How do I declare it? Am I considered a business now?”
These are among the most common. People are right to proactively ask because the consequences imposed by the Canada Revenue Agency (CRA) if you file incorrectly can be severe. With careful tracking and reporting, however, it’s easy for Canadians to get the most out of the sharing economy.
If you’re just starting out in the sharing economy — or even considering it — the most important thing to remember is to track your income accurately. Having a clear picture of your income makes it easier to properly report it each tax year.
If you have expenses to claim, too, then ensure you keep a detailed record of what, when and where the expenses came from because the CRA may ask for proof when you make these claims.
Be sure you are capturing your income accurately in this year’s tax filing. In most cases income earned from the sharing economy is just like income earned from a full-time job. There is no difference between the two so you would proceed as normal with your tax return, counting your additional income as part of the total you report.
For example, if you were making $50,000 dollars annually at your day job and making $4,000 off a rental posted through a sharing site, then your total income to report would be $54,000.
For rental income you calculate what you owe by filing a Statement of Real Estate Rentals (T-776). If you are renting a portion of your home, like a room or a suite, then you can claim a pro-rated amount of your expenses like utilities, mortgage interest, property taxes and maintenance.
The calculation is done based on the square footage of the space. If you have a 3,000-square-foot home and your rental suite is 300 square feet, then you can claim 10 per cent of allowable expenses.
If the space is only available to be rented for a portion of the year, then you would need to factor that into the calculation as well. In the same example, if you only rent your 300-square-foot suite out for three of 12 months, then you would claim 25 per cent of the original 10 per cent of allowable expenses.
There are additional considerations as your income grows through participating in the sharing economy. If you expect to earn more than $30,000, then you may need to start collecting GST/HST from your customers. However, long-term residential rentals (more than a month) are not subject to GST/HST.
Be sure that you understand the terms and conditions around collecting GST/HST before you start. Collecting these taxes properly will ensure you won’t have to take your remittance out from your profits when it’s time to file your return.
Finally, don’t wait to get audited — it’s not worth it. Failing to report income accurately can result in heavy fines and increased scrutiny from the CRA. Reporting your full income means you won’t have to worry about paying for it later. It may also be smart to ask the organizations you are working with if they have tips on how best to manage reporting and expensing — they may have internal insights that you haven’t thought of.
Canadians earning income from sharing platforms will only become more common as the services used become a bigger part of our daily lives. With careful navigation, Canadians can engage in the sharing economy with confidence.
Follow HuffPost Canada Blogs on Facebook
MORE ON HUFFPOST: