Introduction
You have a full-time job earning $70,000 annually. On weekends and evenings, you're doing freelance work or gig economy jobs (Uber, DoorDash, freelance writing, handyman work).
Side hustle income is taxable. But here's the good news: Almost EVERY expense you incur for your side business is deductible.
Many side hustlers report gross side income without claiming deductions—paying taxes on income they could have reduced by 30-50%.
This guide covers exactly what you can deduct and how to track it properly.
What Constitutes a Business (vs. Hobby)
CRA Tests for Business vs. Hobby
CRA distinguishes between:
Business: Undertaken with reasonable expectation of profit
Hobby: Activity undertaken primarily for pleasure
To be a business, you must:
- Operate in a businesslike manner
- Have intention to make profit
- Track income and expenses
- Spend reasonable time on the activity
- Have some profit in most years
Example:
Business:
- Freelance writing for clients, $15,000/year revenue
- Track all expenses and income
- Reinvest profits in equipment, training
- Operate 10+ hours/week
Hobby:
- Blog about travel, occasional $500/year from ads
- Don't track expenses
- Do it for pleasure, not profit
- Operate 2-3 hours/week
If CRA deems your side hustle a hobby → No deductions allowed.
To be safe: Document your business intent, track all expenses meticulously, and show reasonable profit intention.
Home Office Deduction for Side Hustlers
Two Methods for Home Office Deduction
Method 1: Simplified Method
- Flat rate per square foot used for business
- Example: 100 sq ft office × $2 per sq ft = $200/month deduction
- Simple, but lower deductions
Method 2: Actual Expense Method
- Deduct percentage of all home expenses proportional to office space
- Deduct: Rent/mortgage interest, utilities, property tax, insurance, maintenance, internet
Example:
- Home: 2,000 sq ft
- Home office: 200 sq ft (10%)
- Monthly rent: $1,500
- Monthly utilities: $150
- Monthly property tax: $250 (allocated)
- Monthly insurance: $100
- Monthly internet: $50
- Total home expenses: $2,050/month
- Deductible (10%): $205/month = $2,460/year
Documenting Home Office Deduction
You MUST document:
- Dedicated space for business (not shared with personal use)
- Square footage of office and home
- All home expenses (rent/mortgage statements, utility bills, property tax, insurance)
- Percentage of space used for business
- Photos of office space
If CRA audits → You need documentation proving home office use.
Vehicle Deductions for Gig Workers
Tracking Business Mileage
If you use personal vehicle for side business:
1. Track mileage: Keep log for 3-month period to establish percentage
2. Document business use: Ride-sharing, delivery, driving to client meetings
3. Calculate percentage: Business miles / Total miles driven
Example:
- Keep log for July, August, September
- Business mileage: 3,500 miles
- Personal mileage: 8,500 miles
- Total: 12,000 miles
- Business percentage: 29.2%
Deductible Vehicle Expenses
Deductible:
- Gas/fuel
- Insurance
- Maintenance and repairs
- Parking fees
- Depreciation
- Car lease payments
NOT deductible:
- Commuting to main job
- Personal driving
Example:
- Annual vehicle expenses: $8,000 (gas, insurance, maintenance, depreciation)
- Business percentage: 29.2%
- Deductible vehicle expense: $2,336/year
CRA Mileage Rate (Alternative)
Instead of tracking actual expenses, you can use CRA's mileage rate:
- 2024 rate: $0.71/km (varies by province and fuel prices)
- Track only business kilometers
- Multiply by rate
Example:
- Business kilometers: 5,000/year
- CRA rate: $0.71/km
- Deduction: $3,550
Compare the two methods and use whichever is higher.
Meals and Entertainment (50% Deductible)
The 50% Rule
Meal and entertainment expenses are only 50% deductible:
- Client lunch: 50% deductible
- Team celebration: 50% deductible
- Meal while traveling for business: 50% deductible
Example:
- Client lunch: $50
- Deductible amount: $25
- Tax savings: $10.85 (at 43.4%)
What Qualifies
Deductible meals:
- Meals with clients or business associates (while discussing business)
- Meals while traveling for business
- Team meals to encourage productivity
NOT deductible:
- Personal meals at home
- Commute meals
- Meals where no business discussion occurs
Documentation
Keep:
- Receipt (showing what was purchased)
- Name of person you dined with
- Business purpose (what was discussed)
- Date
Equipment and Tools
Expense vs. Capital Asset
Small expenses (under $500): Fully deductible immediately
Capital assets (over $500): Depreciated over time
Example:
- Laptop ($1,200): Capital asset (depreciated ~20%/year)
- Software subscription ($200): Fully deductible
- Office chair ($400): Fully deductible
- Desk ($800): Capital asset (depreciated)
Depreciation (Capital Cost Allowance)
For assets over $500:
- Computer equipment: 20%/year
- Furniture: 20%/year
- Vehicles: 15%/year
Example:
- Buy laptop: $1,200
- First-year depreciation deduction: $240 (20%)
- Tax savings: $104 (at 43.4%)
Over 5 years: $600 total deduction = $260 in tax savings.
Office Supplies and Technology
Fully Deductible Expenses
These are 100% deductible immediately:
- Office supplies (paper, pens, folders): $50-$200/year
- Software subscriptions (Adobe, Microsoft Office, Slack): $200-$500/year
- Website hosting: $50-$150/year
- Internet service (percentage for business use): $30-$50/month
- Phone service (percentage for business use): $20-$40/month
- Printer ink and paper
- Desk lamp, mouse, keyboard
- Filing cabinets
Example:
Monthly office expenses:
- Software subscriptions: $30
- Internet (20% business use): $10
- Phone (20% business use): $8
- Supplies: $15
- Total: $63/month = $756/year
These are easy to track and fully deductible.
Client Expenses and Professional Development
Client Acquisition Costs
Deductible:
- Networking event fees to meet potential clients
- Business card printing
- Website design and updates
- Advertising (Google Ads, Facebook Ads)
- Professional photos for business profiles
Professional Development
Deductible:
- Online courses related to your business
- Books on business topics
- Industry conference attendance
- Certifications or training
Example:
- Udemy course on freelance writing: $50 (fully deductible)
- Industry conference: $500 registration + $200 travel = $700 (all deductible)
- Certification exam: $300 (fully deductible)
Total professional development: $1,050/year
These investments in your business are tax-deductible.
Insurance and Professional Expenses
Business Insurance
- Professional liability insurance
- General liability insurance
- Cyber insurance
These are fully deductible.
Example:
- Professional liability insurance: $500/year (fully deductible)
- Tax savings: $217
Accounting and Legal
- Tax return preparation: Fully deductible
- Accounting software: Fully deductible
- Legal consultation on contracts: Fully deductible
- Business registration/licenses: Fully deductible
Example:
- Tax preparation for side business: $500 (fully deductible)
- Accounting software: $200 (fully deductible)
- Business license: $100 (fully deductible)
- Total: $800/year
- Tax savings: $347
Common Mistakes Side Hustlers Make
Mistake 1: Not Tracking Deductions
Many side hustlers report gross income without claiming any deductions.
Example:
- Side income: $20,000
- Actual expenses: $6,000 (40% of income)
- Tax on gross (43.4%): $8,680
- Tax on net (43.4% on $14,000): $6,076
- Mistake costs: $2,604 in unnecessary taxes
Action: Track EVERY expense from day one.
Mistake 2: Claiming Personal Expenses as Business
Common error:
- Claiming entire home expenses (should be proportional to office)
- Claiming personal entertainment (should be business-related)
- Claiming personal vehicle use as business
- Claiming personal phone bill as business
CRA red-flags disproportionate deductions. Only claim actual business-related expenses.
Mistake 3: Not Documenting
You MUST have documentation:
- Receipts for all expenses
- Mileage log (if claiming vehicle deduction)
- Photos of home office
- Business purpose documentation
Without documentation → CRA can deny deductions if audited.
Mistake 4: Missing Obvious Deductions
Common missed deductions:
- Home office (because don't know how to calculate)
- Vehicle mileage (because complicated)
- Professional development
- Software and subscriptions
Action: Create checklist of potential deductions and review monthly.
Mistake 5: Mixing Business and Personal Accounts
Use separate bank account for business income and expenses.
Why: Makes tracking deductions trivial. If everything's in one account, separating business vs. personal is nightmare.
Setting Up Side Hustle Accounting System
Step 1: Open Separate Bank Account
Open business checking account for side hustle:
- Deposit all side income here
- Pay business expenses from this account
- Keep personal and business finances separate
- Makes tax time trivial
Step 2: Use Accounting Software
Use simple tools to track income and expenses:
- Wave (free)
- QuickBooks Self-Employed ($15/month)
- Wealthsimple Tax (free for filing)
Spend 15 minutes/month tracking:
- Income received
- Expenses paid
Software generates tax reports automatically.
Step 3: Track Quarterly
Every 3 months:
☐ Review side income to date
☐ Estimate quarterly tax payment needed
☐ Review expense categories (what's missing?)
☐ Organize receipts
☐ Update spreadsheet with tax estimate
This prevents April surprises.
Step 4: File Taxes Properly
When you file:
- Report side income on Schedule 8 (Self-Employment Income)
- Claim all tracked expenses
- Calculate net profit or loss
- File complete return (even if only a few thousand in side income)
Not filing = CRA notices you eventually.
Tax Deduction Checklist for Side Hustlers
Use this checklist to ensure you're claiming all available deductions:
Workspace:
☐ Home office deduction (calculate proportional expenses)
☐ Desk/furniture/office supplies
☐ Internet (business percentage)
Equipment:
☐ Computer/laptop (depreciated)
☐ Software subscriptions
☐ Tools specific to your business
Vehicle:
☐ Mileage (business-only)
☐ Or vehicle expenses (deduct business percentage)
Professional:
☐ Courses and training
☐ Industry certifications
☐ Books and resources
☐ Conference attendance
Expenses:
☐ Client meal and entertainment (50%)
☐ Business insurance
☐ Accounting/legal professional fees
☐ Advertising and marketing
Income-Related:
☐ Bank fees
☐ Merchant processing fees
☐ Platform fees (if selling online)
Review this checklist annually to capture all deductions.
Conclusion
Side hustlers typically leave $3,000-$10,000/year on the table through missed deductions.
By tracking expenses systematically, using separate accounts, and claiming all legitimate deductions, you can reduce your side hustle tax burden by 30-50%.
The time investment is minimal (15 minutes/month). The tax savings are substantial.
Start today. Set up separate account. Track one month of expenses. You'll immediately see what's deductible.
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