The Tax Blog for Smart Canadians

Get organized

The best tip is actually the simplest: get organized. Remember that a gig is considered self-employment, even something like Uber, Lyft, Uber Eats and Skip The Dishes, for instance. This means that you can deduct the expenses incurred while making money but you will miss out on these deductions if you don’t track your expenses properly.

Money earned through Airbnb can be considered business or rental income depending on the services offered to the customers. We have a great article on this subject titled From Uber to Airbnb: navigating taxes in the sharing economy. In either case, you have to track your expenses properly.

Now, you're probably wondering if you have to go "old school" and keep all your receipts in a shoe box. The answer is no. Just like typical gig economy apps like Uber and Airbnb, there are accounting apps on the market today that rely on highly innovative technology. They allow you to simply take a picture of your receipts, then they log the expenses for you. No more shoe boxes full of receipts!

For your car expenses, the CRA requires you to keep a logbook of your business mileage. In the first year of your business, you have to maintain a full logbook to establish a “base year.” Afterwards, you can use a three-month sample logbook for the following years. Again, in this case, technology is your friend. There are apps out there that can track your mileage for you and establish your logbook. Make sure to find the one that’s right for you.

What can I deduct?

Considering that this type of business is usually home-based, you can deduct expenses for the business use of a workspace in your home. The key word here is “workspace.” You are allowed to deduct expenses incurred for your home, but only for the portion that serves as your workspace. This means that you must prorate your expenses based on the area that the workspace represents vis-à-vis the total area of your home (workspace divided by total space of home). In addition, your workspace must be used primarily to earn your business income. 

The types of home-based expenses you can deduct include part of maintenance costs such as heating, home insurance, electricity, and cleaning materials. You can also deduct part of your property taxes, mortgage interest, and depreciation, or rent if you rent your home.

Expenses such as your cell phone data and home internet charges must also be prorated per the formula mentioned above.

If you’re using your car for business purposes, you can deduct expenses such as maintenance, repairs, fuel, depreciation, leasing fees, insurance, licence and registration. However, you must prorate these expenses based on the business use of your car. For example, if 30% of the mileage you put on your car for the year is related to your business, you can deduct 30% of these expenses off your gross business income.

Don’t overdo it

As mentioned above, since a gig is considered a business, you can deduct expenses and lower your tax bill. That’s great news, but it doesn’t mean that you should now indiscriminately spend money on the business because the government gives you a break. A business should always look to keep expenses to a minimum regardless of whatever tax breaks it might be able to get. Do you think that Fortune 500 companies like Walmart and Procter & Gamble are lenient when it comes to their expenses because they can deduct them? Obviously not.

The government also limits what you can deduct for specific expenses. One of these expenses is meals and entertainment. Maybe you’ve always had your eye on the swankiest restaurant in town, but could never go because of the astronomical prices. What better chance will you get to try it since you can now deduct the expense, especially if you’re taking a client with you? Not so fast! Unfortunately, the CRA only allows you to deduct 50% of the expense against your business income. That restaurant is not so appealing anymore, is it?

The government also limits your car expenses. We saw earlier that you have to prorate your expenses based on your business mileage, but the government also imposes a limitation on the value of the vehicle. Your depreciation expense is based on the value of the car that you purchase, and the eligible claim is determined as follows: the value of the car multiplied by the rate set by the CRA (30%). Well, this sounds interesting... you can go ahead and buy a dream car, like a Mercedes or a Lexus, and claim the depreciation expense based on the value of the chosen model! Unfortunately, the CRA will dash this dream by capping the value of the car you expense for depreciation at $30,000 plus applicable sales taxes, even if you’re using the luxury car for business purposes. So, you can go ahead, buy that Lexus and enjoy it; but tax-wise, you will be deducting a Toyota.

The lesson here is simple: don’t overspend on your business because you can deduct the expenses and get a break. As we just saw, these “breaks” are not as appealing as they seem.

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