The Gig Economy in 2020: Tips for Saving TaxesBrian Jang ON August 12, 2020
You may have never heard the term “Gig Economy”, or if you have, you might not know what it means. If you are familiar with the term “gig” at all, it might conjure up images of musicians playing one-night shows in a bar or other small venue and that is pretty close.
A gig is a temporary, flexible job and in relation to companies and business, it can refer to contractors and freelancers. A gig economy is one in which the labour market has a prevalence of these short-term contracts or freelance work.
Today, becoming part of the gig economy has been greatly simplified by technology; downloading an app or owning a car might be all that you need to get started. In fact, one in three working Canadians are now managing a side business. Just like anything else that earns income, your gig will be taxed, but here are some tips that can help you save on those taxes.
It is important that you get and stay organized. Although people tend to think of self-employment as working online from home or something similar, you are still self- employed with Uber, Uber Eats, Lyft and similar endeavours. You are therefore able to deduct related expenses, but you are bound to miss some if you are not tracking things carefully.
While it was common enough in the past to keep an envelope full of receipts– or eve the cliché shoe box– modern technology is here to help you again with apps that can log your expenses for you after you simply take a picture of the receipts.
In the case of Uber and similar services, you will need to keep a logbook of your business mileage, as per the CRA’s requirements. If it is your first year doing so, you are required to maintain a full logbook which will serve as a “base year”, but in the years that follow, you are able to use a three-month sample logbook. If you are concerned about tracking this correctly, there are once again apps that can make your life easier by tracking mileage for you and creating your logbook.
If your business is home-based, you are able to make deductions based on your business use of the workspace. Note that this is literally the space in your home used for work, calculated as the workspace divided by the total space in the home. This area must be primarily devoted to earning your income, not regular at-home activities.
Expenses that are eligible for deduction include heating, electricity, insurance, and cleaning materials, but again this is a percentage of the expenses for the house, determined by the size of your workspace. Even a portion of your property taxes, mortgage interest, and depreciation are eligible, as is rent if you are renting your home.
If your home internet or your cell phone are used as part of earning your income, those expenses can also be claimed, prorated the same way as your workspace. Similarly, if you are using your car for business purposes, you can deduct certain expenses, including fuel, repairs, insurance, leasing fees, and registration. Once again, this must be prorated according to the amount of business use vs. personal use.
Control Your Expenses
It can be tempting to think that the ability to deduct expenses means you can increase your expenditures, but you are running a business, and businesses don’t succeed through wild spending; spend where needed and keep track of the expenses, but maintain a budget and be aware that there are limits to what can be deducted.
For example, there are limits to car expenses. Not only do you have to prorate the expenses, there is a government-imposed limit on the value of the car; the depreciation expense is limited to the value of the car multiplied by the rate set by the CRA (30%), but with the value of the car capped at $30,000 plus applicable sales taxes.
The main thing to remember is that while being self-employed does offer you the ability to deduct certain expenses, you are still running your own business, and need to keep those expenses at a realistic level.
For more tax saving tips, contact BCJ Group today.
- How to Start a Business in Canada
- Filing 10 Years’ Worth of Personal Tax Returns (Or More)
- Registering for the GST Retroactively
- Which Canadian Business Structure is Right for You?
- The Gig Economy in 2020: Tips for Saving Taxes