How to File Taxes for Your Side Hustle in Canada

Nearly 1 in 4 Canadians, or roughly 23%, have participated in the gig economy through side hustles like freelancing, ride-sharing, or selling products online in order to boost their income—this is about an 85% increase in the number of Canadian gig workers from just 3 years ago. The rising cost of living, stagnant wages, and the desire for flexible work schedules for Canadians all contribute to the jump.

Knowing what counts as a side hustle under Canadian tax rules and how to file taxes correctly can help you avoid penalties and maximize deductions. This guide covers what you should know to report your side hustle income and stay compliant with the Canada Revenue Agency (CRA). But, first, let's start with the basics.

What is a side hustle?

A side hustle is self-employment income earned outside regular employment and reported to the CRA as business income.

Common types of side hustles

Here's a list of some of the more well-known side-hustle gigs:

• Freelance design services, writing, consulting
• Ride-sharing and food delivery (e.g., Uber, SkipTheDishes)
• Online sales on platforms like Etsy, eBay, or Amazon
• Social media content creation
• Tutoring (academic, music, language, coding)

These jobs offer flexible income but still require accurate tax reporting.

What are your tax obligations as a side hustler?

It's important to understand the difference between employment and self-employment income. Employment income has taxes withheld by the employer reflected in an employer-issued T4 slip.

If you are getting income from a side hustle or self-employment, you are responsible for calculating and submitting your taxes yourself for that income. You must report it all and manage your own tax deductions, remittances, and payments. But it's not as hard as it might sound, if you know the basic rules.

How do you file your side-hustle taxes step-by-step?

Filing taxes for your side hustle starts with understanding your income and expenses, then identifying deductible costs. Once you know what to report, you fill out Form T2125 to detail your business activities and transfer the net income to your T1 General tax return for submission.

Below are more details to help you through the process.

Report all income and avoid CRA penalties

You must declare all income earned from your side hustle—no matter how small (including tips)—to avoid penalties and stay compliant with tax laws. Failing to report income or late-filed returns may result in CRA penalties.

Late-filing penalties start with an initial 5% of the unpaid taxes plus 1% per month for up to 12 months, along with daily interest charges. Penalties for repeatedly failing to report income or deliberately omitting amounts can be even higher, reaching up to 10% on amounts not reported—plus possible prosecution in severe cases.

Claim tax deductions

You can deduct expenses related to your side hustle to reduce taxable income. Common deductible expenses include:

• Home office costs (portion of rent, utilities)
• Vehicle costs (fuel, insurance, maintenance, proportionate to business use)
• Advertising and marketing expenses
• Office supplies and equipment
• Phone and internet costs used for business
• Professional dues and training

Keep detailed records to support your claims.

Fill out the T2125 form

Form T2125, or Statement of Business or Professional Activities is a way to tell the CRA how much money you made from your side hustle and what expenses you incurred related to that work.

Follow these steps to complete the form:

• Gather all side hustle income documentation (receipts, invoices,
• List all related business expenses (home office supplies, vehicle costs)
• Calculate your net income (income minus expenses)
• Review and attach the completed form with your tax return

When must you register for GST/HST and how does it work?

If your side hustle earns over $30,000 over four consecutive quarters, you must register for a Goods and Services Tax (GST)/Harmonized Sales Tax (HST) account to charge and remit sales tax. Before registering, you need a business number (BN) from the CRA.

For example, if your earnings are $35,000 and the GST/HST rate is 13%, you charge customers: $35,000 × 0.13 = $4,550 in GST/HST, which you remit to the CRA.

How do you report losses and carry them forward?

If your self-employment incurs losses, you can report them on Form T2125 to reduce your taxable income. It’s important to distinguish between non-capital and capital losses. Here's more explanation:

• Non-capital losses. Expenses exceeding income; can offset other income and be carried back 3 years or forward 20 years. Includes startup costs and bad debts.
• Capital losses. Losses from selling assets below cost; offset only capital gains with a carryback of 3 years and an indefinite carryforward.
• Bad debts. Unpaid invoices deductible as business expenses.

Accurately reporting these losses on Form T2125 could maximize your tax benefits.

Canada Pension Plan (CPP) contributions

As a self-employed individual, you pay both employer and employee Canada Pension Plan (CPP) contributions on your net income. In 2025, the combined CPP rate is 11.9%, applied to income between the basic exemption and the maximum pensionable earnings.

Key thresholds for 2025:

• Basic exemption: $3,500
• Maximum pensionable earnings (YMPE): $71,300
• Additional pensionable earnings (YAMPE) subject to enhanced CPP2 rate: $71,300 to $81,200

If you earn $3,500 or less, no CPP is due. Income up to $71,300 is taxed at 11.9%, while earnings between $71,300 and $81,200 pay an enhanced 8% CPP2 rate.

For example, with $75,000 net income, total CPP contributions = $8,364.20.

[Base CPP of 11.9% on $71,300 + CPP2 of 8% on $3,700.]

Understanding these limits helps you plan your CPP obligations accurately.

What are the filing deadlines and payment dates?

Most Canadians file taxes by April 30. Self-employed and side hustlers get until June 15 to file, but all taxes owed must be paid by April 30 to prevent interest charges.

When should you consider incorporating?

Incorporation creates a separate legal entity from your business and comes with these benefits and considerations:

• Provides personal liability protection by separating your personal assets from business risks.
  
  
• Allows tax planning flexibility by letting you retain earnings in the corporation to defer personal taxes.
  
  
• Suitable for consultants, tech professionals, agencies, or businesses with multiple clients or employees.
  
  
• Involves added costs, paperwork, and regulatory requirements.

Incorporating might be appropriate for you if your side hustle is growing or you want to optimize liability and taxes; small part-time gigs may not need it.

Prepare ahead to simplify the process

So what it comes down to when filing your taxes correctly as a side hustler is understanding that the work is considered a business—even if it's not your primary source of income. But you use your personal T1 General Tax Form to record it. Be sure to know all your obligations, separate your finances, and track all your income and expenses.

Still, filing taxes when you're self-employed or have a side hustle may feel overwhelming, or like you might make a mistake during the process. That's why TurboTax is here to help. TurboTax Assist & Review can give you year-round expert help if needed, just a final review—or completely handle your taxes for you.

FAQs

What counts as a side hustle in Canada?

A side hustle includes any self-employment or gig work outside regular employment that generates income, such as freelancing, selling goods online, or ride-sharing.

How is side-hustle income reported on tax returns?

You report side hustle earnings as business income using Form T2125 when filing your taxes, including all income and expenses related to the business.

When must you register for GST/HST?

If your side hustle earns more than $30,000 annually, you must register for a GST/HST account and begin charging and remitting sales tax.

What tax deductions for self-employed individuals are available?

You can deduct many business-related expenses to lower your taxable income—from home office costs to professional fees. Tracking and claiming all eligible expenses helps keep more money in your pocket.

Take control of your side hustle taxes with TurboTax

While filing side-hustle taxes can feel complex, using TurboTax can make it manageable. Let us guide you through filing your taxes.

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