Why advisors must urge clients to declare extra income

H&R Block highlights dangers of not declaring income as more people take on side jobs

Why advisors must urge clients to declare extra income

A staggering 28% (or roughly 8,746, 000 Canadian adults) report working in the gig economy -  a contrast with 13% in 2022. This includes taking on jobs in transportation and delivery companies like Uber and DoorDash, homestay services like AirBnB and Vrbo, freelance and contract work ranging from dog walking to construction, and marketplace platforms like Etsy and Poshmark.

In the past 12 months, 20% of respondents to the H&R Block-commissioned poll reported taking on a side job to increase their income (35% among 18- to 34-year-olds). However, the study finds that many of these gig workers are inclined not to record all their income due to pressure from rising living expenses.

"The survey indicates that many Canadians feel tempted to avoid declaring all their income from a side gig, and many lack an understanding of the tax implications," said Yannick Lemay, Learning Program Lead & Tax Specialist, H&R Block Canada. "While it's easy to think that smaller amounts may go unnoticed, by not declaring all income to the Canada Revenue Agency (CRA), Canadians face the risk of not just having to pony up for the full amount of taxes owing if they're audited – but they'll also be charged interest and could face substantial penalties if it's discovered.”

He said that there are literally hundreds of allowable costs and deductions, many of which result in cash refunds. Navigating tax-related perks can be challenging due to the enormous diversity of the gig workforce. To avoid unintentionally leaving money on the table when completing one’s taxes, Lemay noted that it's crucial to have a thorough awareness of your unique tax status.

Due to the growing cost of living and inflation this year, over two-thirds (63%) of gig workers started a side business. Furthermore, 15% of Canadians indicate they plan to start a side business in the future.

Canadians are tempted to withhold some or all of their side income because, on average, 85% are worried that their income is not keeping up with the rising cost of living. For those who presently have a side business, over half (49%) said they would be ready to take the chance of not disclosing "all" of their related income, while 44% would be willing to take the chance of not disclosing "any" of their side business profits.

It's critical to understand that failing to declare all income can result in severe fines from the CRA.

Bottom line: Tax evasion or failing to record all income at the time of filing taxes is illegal in the eyes of the law.

Most gig workers (74%) believe that their cash boost comes from a side business in addition to their main source of income. Comparatively speaking, 26% of people claim that their major occupation is freelance work.

The amount of disclosure of gig workers to their major workplace is interestingly equally split, with 51% of respondents claiming that their employers are unaware of their side hustle and 49% claiming that they have informed their company. More than one in five gig workers (23%) say they don't fully grasp the tax repercussions of doing gigs.

As the gig economy keeps expanding, H&R Block highlights important tax considerations such as knowing all your allowed deductions and credits, declaring gig income to qualify for credits, possible RRSP benefits, and GST/ HST/ QST considerations.

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