The prevalence of self-employed, independent workers and contractors performing part-time work, also known as the “gig economy,” has exploded in recent years. Over the past 20 years, the number of gig economy workers — those who operate as independent contractors, often through apps — has increased by about 27 percent more than the number of payroll employees, according to a study by the Metropolitan Policy Program at the Brookings Institution. Intuit Canada, the makers of accounting software QuickBooks, estimates that freelancers, independent contractors and on-demand workers will make up 45 percent of the Canadian workforce by 2020.
While these workers enjoy the benefits of flexibility, including the ability to supplement income from a full-time job with earnings from their gig of choice, some aspects of the working world have yet to catch up with the gig economy’s fervent pace of growth. Many gig economy workers are left wondering what to do at tax time in particular.
Filing Taxes as a Gig Worker
Many people who get extra income through gig economy services are often under the mistaken belief that their income is tax-free. The Canada Revenue Agency expects people to report all of their income, including income derived from “gigs.” As such, many gig economy workers are actually striving to better learn and understand the Canadian tax system in order to maximize the advantages that flexible work affords them.
One of this author’s first mistakes as a gig economy worker was to go into projects without a solid contract and record-keeping system across all stages of the process. Since there’s no way to officially log gig work, the burden is on the worker to keep detailed records and logs. For example, if you were to rent out your apartment with Airbnb, you should keep a detailed record of each rental, its duration, the agreed-upon rate and final price. Keep these dated and filed in a way that you can easily recall them when needed, and keep them somewhere safe!
Log Your Expenses
Another important type of record to keep is that of any business-related expenses. This is an absolute must-do. Keep every single receipt for what you consider a “business expense” in order to be able to write your expenses off in your taxes. If you work from home, you may also get to write off some of your living expenses. The caveat here is simple: you must provide proof that an expense was incurred for business purposes, so items such as gifts or donations cannot be claimed.
Mind the HST
If you make more than $30,000 a year as a self-employed individual, you have to register for an HST account with the Canada Revenue Agency. Integrate the rate of HST in your province into your fees for freelance or contract services, and keep the total amount of HST aside for tax filing purposes.
Keep an Income Tax Account
It goes without saying that as a gig worker, even in combination with a full-time job, some or all of your income is not automatically tax-deducted. In order to keep a more stable personal financial outlook throughout the year, make sure to set aside a percentage of that income (usually somewhere between 15 and 30 percent) that will be used to pay income tax. It’s tempting to ignore the effect of income tax collection on your personal finances until you have to file, but adjusting the cost of taxation into your budget for the full year will help you plan your day-to-day budgeting and expenses more accurately.
Take The Doubt Out of Benefits
In late 2016, The Ontario-based Urban Worker Project surveyed 1,000 of what it called “precarious” workers across Canada. The project survey found that the top workplace concern of most contract and gig economy workers was access to extended health benefits. Many employers who hire contractors do so do minimize payroll costs, but some corporate insurers are willing to add contract workers to standard group benefits plans under the right conditions.
Despite this inherent drawback of the gig system, Independent contractors can sometimes access benefits through professional associations if they do not associate with a particular firm. Canadian artists, for example, can apply for benefits through the Actra Fraternal Benefit Society, a non-profit insurance company. In the U.S., workers have filed class actions against gig economy giants like Uber on the grounds that they should be classified as employees and entitled to ensuing benefits and protections.
As the gig economy grows ever-larger, it’s expected that more rules and regulations will eventually be developed to get contractors and gig workers the protections, services, financial options and quality of workplace that they deserve. Success in the gig economy doesn’t just demand a willingness to work hard: it requires important financial preparedness that anyone looking to start working more flexibly should be ready to take on.