Side hustles are everywhere in Canada. Whether you are driving for Uber or DoorDash, selling handmade goods on Etsy, offering freelance graphic design, tutoring students, or renting out your basement on Airbnb, millions of Canadians are earning extra income alongside their regular jobs.
But here is the thing a lot of people do not realise: in Canada, all income is taxable. There is no minimum threshold below which you can just ignore it. If you earned money, the CRA expects you to report it. The good news is that the process is not as scary as it sounds, and there are plenty of expenses you can deduct to reduce what you owe.
Yes, You Need to Report All Side Income
Unlike some countries that have a small trading allowance, Canada has no such exemption. If your side hustle earned you $500, $5,000, or $50,000, it all needs to go on your tax return. You report it as self-employment income (business income) on your T1 tax return, usually using Form T2125 — Statement of Business or Professional Activities.
This applies to virtually every type of side income, including:
- Freelance or contract work
- Driving for ride-share or delivery apps
- Selling products online (Etsy, Shopify, Amazon, eBay)
- Tutoring, coaching, or consulting
- Renting out a room or property
- Content creation, streaming, or social media income
The only major exception is if you are selling personal-use items at a loss. Clearing out your garage on Facebook Marketplace for less than you paid is not taxable. But if you are regularly buying things to resell at a profit, that is business income.
How Much Tax Will You Actually Pay?
Your side-hustle income gets added on top of your employment income, and you pay tax on the total at whatever marginal rate applies. Since most people already use up their basic personal amount through their day job, side-hustle income is typically taxed starting at 20.5% federally (the second bracket) or higher, depending on your total income.
Let us say you earn $55,000 at your day job and make $10,000 in side-hustle profit. Your total income is $65,000, which means the side-hustle portion falls mostly in the second federal bracket (20.5%). Add in your provincial tax, and you might be looking at a combined rate of 30% to 35% on that extra $10,000, depending on your province.
You can see exactly how adding side income affects your total tax using our side hustle tax calculator. It factors in both federal and provincial rates to give you an accurate picture.
Self-Employment Tax: CPP Contributions
Here is the part that catches a lot of side hustlers off guard. When you are self-employed, you pay both the employee and employer portions of Canada Pension Plan contributions. That means instead of paying 5.95%, you pay 11.9% on your net self-employment income (after the $3,500 basic exemption).
If your side hustle earns $10,000 in profit, you would owe about $773 in CPP contributions on top of income tax. It is a real cost, but it does go towards your retirement pension, so it is not just money disappearing.
If you already pay maximum CPP through your day job, you will not owe additional CPP1 contributions on your side income. But you might still owe CPP2 contributions if your combined employment and self-employment income exceeds the first earnings ceiling of $71,300. Our self-employed CPP calculator can help you figure out exactly what you owe.
What Expenses Can You Deduct?
This is where many side hustlers leave money on the table. You can deduct any reasonable business expense from your side-hustle income, which means you only pay tax on your net profit, not your gross revenue.
Common deductions include:
- Supplies and materials — anything you buy to create your product or deliver your service
- Software and subscriptions — Shopify, Canva, accounting software, web hosting
- Vehicle expenses — if you drive for your side hustle, you can claim gas, insurance, maintenance, and depreciation based on the business-use percentage. Our vehicle expenses calculator makes this easy.
- Home office — if you use part of your home regularly for your side hustle, you can claim a portion of rent or mortgage interest, utilities, property tax, and internet. Our home office deduction calculator helps you calculate your claim.
- Advertising and marketing — social media ads, business cards, website costs
- Professional fees — accountant fees, legal fees, business insurance
- Phone and internet — the business-use portion of your bills
Keep all your receipts and records. The CRA can ask to see them for up to six years after you file your return. A simple spreadsheet or a free accounting app works fine for most people.
Use our business deductions calculator to see how claiming expenses reduces your tax bill.
Do You Need to Collect GST/HST?
If your side-hustle revenue (not profit, but total revenue) exceeds $30,000 in any four consecutive calendar quarters, you are required to register for a GST/HST account and start charging tax on your sales. This applies to most goods and services, though some things like basic groceries and certain health services are exempt.
Even if you are under $30,000, you can voluntarily register. This lets you claim input tax credits (ITCs) to recover the GST/HST you pay on business purchases. If your expenses are significant relative to your revenue, voluntary registration might actually put money back in your pocket.
Our HST registration calculator can help you figure out whether registering makes sense for your situation.
How to File Your Side-Hustle Income
You report side-hustle income on your regular T1 personal tax return, using Form T2125. You do not need to incorporate or register a business name to report self-employment income — you just report it under your own name and social insurance number.
The tax filing deadline for self-employed individuals (and their spouses) is June 15th, but any tax owed is still due by April 30th. If you owe money and pay late, the CRA charges interest and may add penalties, so it is best to estimate and pay on time even if you file your return a bit later.
If you expect to owe more than $3,000 in net tax for the year, the CRA may require you to make quarterly instalment payments. This is common for people whose side hustle has grown into a significant income source.
Tips to Make It Easier
Open a separate bank account. Keep your side-hustle income and expenses in their own account. It makes tracking and reporting so much simpler at tax time.
Set aside 25-30% of your profit for taxes. This is a good rule of thumb to cover income tax and CPP contributions. Put it in a high-interest savings account so it earns a bit of interest while you wait to pay.
Track expenses as you go. Do not wait until March to try to remember every receipt from the past year. A quick weekly check-in with your records takes five minutes and saves hours of stress later.
Use our calculators. Our self-employed tax calculator gives you a complete breakdown of what you owe, including income tax, CPP, and provincial taxes. It is free and takes about a minute.
The Bottom Line
Having a side hustle is a great way to earn extra income, pay down debt, or save for something important. The tax side of things is not complicated once you understand the basics: report everything, deduct your legitimate expenses, and set aside money for the tax bill. The CRA is not out to get you — they just want you to report honestly, and the system actually rewards you for keeping good records through all those deductible expenses.