SIDE HUSTLE OR HOBBY OR BUSINESS

SIDE HUSTLE • HOBBY BUSINESS • SPORTS

Untax What You Love  

Because paying taxes on your passion sucks but planning it right doesn’t have to.

You started your side hustle, hobby business, or weekend sports gig for one reason: you love it. Maybe it's photography, selling handmade candles, personal training on the side, or coaching youth soccer for a small honorarium. Whatever it is, the passion is real.

But then comes the shocker:
CRA wants a piece of it.

Suddenly, what felt like a creative outlet or side income stream is being taxed like your 9–5. That stings.

Here’s the good news:

 You Can “Untax” What You Love — Legally
Set it up as a sole proprietorship (super easy in Canada), and you’re in business literally.

  You Can Deduct Legit Expenses
From supplies and software to home office, travel, training, and gear if it helps you earn, it can be claimed.

 You Only Pay Tax on Profit — After Deductions
Spent $5K but earned $7K? You’re only taxed on the $2K. If you’re still building, you may owe nothing at all.

You Can Reinvest More Back Into Your Craft
Less tax = more budget for growth, better tools, and more impact all without losing sleep over the CRA.

You just need the right structure and strategy.

◎  The Problem: Side Hustle Tax Surprises  

Most Canadians assume that if it’s “just a side thing,” they don’t need to report it. But here’s how the CRA sees it:

• There’s a reasonable expectation of profit (even if you haven’t made any yet).
• You offer a service or product for sale.
• You conduct yourself in a business-like manner (e.g. promotions, payments, repeat transactions).
• It’s not just a hobby for personal enjoyment or one-time thing.

Even a small Etsy shop, tutoring gig, photography session, or casual contracting job could be considered taxable if the above applies.

If It’s Taxable Business Income, Here’s What You’re Expected to Do:  

• Report it on your personal tax return
  Use a T2125 (Statement of Business or Professional Activities) to declare your revenue and expenses.
• Pay income tax on the net profit
  Only profits (revenue minus business expenses) are taxable but they are taxable.
• Register for GST/HST if you cross $30K in revenue
  Once your global sales from all “business activities” hit $30K over four consecutive calendar quarters, you must register for GST/HST and start charging it.
• Track income and keep receipts for expenses
  CRA expects proper record keeping income invoices, mileage logs, supply costs, and home office expenses even if it’s part-time.

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◎ The Solution: Turn Passion Into a Tax-Efficient Business  

With the right setup, your hobby can become a tax-deductible playground. That means you:

You Report It as a Business (Even Part-Time)
Just by filing a simple T2125 with your personal tax return, you establish your hobby as a sole proprietorship in CRA’s eyes. No complex registration needed.

□  You Can Claim Related Expenses
Every dollar spent on your hustle from gear and supplies to website costs and training can reduce your taxable income.

□  Early Losses Might Not Be Taxed
If your side hustle is just getting off the ground and showing a small profit (or even a loss), you might pay little to no tax but still deduct legitimate costs.

□  You Keep More to Reinvest
Less money going to CRA = more capital to grow your skills, brand, or business. That means better gear, more promotion, and faster growth.

Common Side Hustles That Can Be Tax-Efficient:  

• Freelance photography, art, or music
• Personal training, coaching, or fitness instruction
• Crafts, handmade goods, Etsy shops
• Online tutoring or consulting
• Coaching youth sports or officiating part-time
• Buying and selling collectibles or sneakers
• Affiliate marketing, YouTube, or content creation
• Fantasy sports leagues (when monetized)

◎  What You Can Deduct (Legally)  

If you report your passion project as a sole proprietorship (which is super easy in Canada), you can deduct things like:

• Equipment, Tools, or Supplies
  Cameras, crafting materials, sports gear, baking tools, software, or anything used to earn income.
• Home Office Portion
  Claim a percentage of your rent, utilities, and even property taxes based on square footage used for work (like editing, client calls, admin).
• Marketing & Website Costs
  Social media ads, domain names, web hosting, Canva Pro all deductible if used for business.
• Travel or Vehicle Expenses
  Gas, mileage, parking, insurance (business portion) for getting to markets, gigs, or client meetings.
• Training, Memberships, or Coaching
  Courses, certifications, and industry memberships (like photography associations or sports leagues).
• Phone & Internet (Business Use)
  If you use your mobile or Wi-Fi for business calls, uploading content, client emails, etc., you can deduct the portion used.

☆  Example  

Let’s say your weekend photography hustle brought in $12,000 this year. But:

• You spent $3,000 on a camera and lens
• $1,200 on editing software and website hosting
• $1,800 in travel to gigs
• $600 in online courses
• $500 for home office use

Your taxable income is now only $4,900 and you only pay income tax on that, not the full $12K.

◎  How to Start  

Here’s what to do if you're ready to "untax" what you love:

1. Track All Income & Expenses — Even If It’s Casual
   Use a basic spreadsheet or app like QuickBooks Self-Employed. Income from e-Transfers, PayPal, or cash? Record it. Bought supplies or gear? Track that too. CRA doesn’t care how “part-time” it is if there’s income, it counts.
2. Open a Separate Bank Account
   Even a no-fee chequing account will do. This keeps your business income and expenses clearly separated from personal finances which makes taxes (and CRA audits) way easier to handle.
3. Register Your Business Name (Optional)
   Not required for tax purposes, but it can add a level of professionalism especially if you’re building a brand. In Ontario and most provinces, sole proprietors can register a business name in under 30 minutes.
4. Keep Your Receipts (Digital Is Totally Fine)
   Don’t rely on memory. Snap pics of receipts or save PDF invoices. CRA accepts digital copies but only if they’re legible and stored properly. Use folders by category or month to keep it organized.

   5. Work With a CPA Who Understands Side Hustles & Creative Biz
Not all accountants “get” non-traditional income. You want someone who can help you:

• Maximize legit write-offs
• Avoid rookie tax mistakes
• Know when (and how) to register for GST/HST
• Plan for future growth

Important: When CRA Won’t Let You Deduct  

CRA may question your deductions if:

There’s No Reasonable Expectation of Profit
If you’ve been operating at a loss year after year with no strategy to turn things around, CRA might say it’s not a real business.

♢  You’re Claiming Large Deductions Without Revenue
Writing off a new laptop, office furniture, and mileage but only earning a few hundred bucks? That mismatch raises eyebrows.

♢  You Only Work on It Occasionally
A few hours a month, no website or marketing, and no pattern of client activity CRA may call it a hobby, not a business.

♢  No Evidence of a Business Mindset
No business bank account, no invoices, no tracking it signals a lack of structure. That weakens your ability to justify deductions.

  How to Prove It’s a Business — Not a Hobby  

• Keep Detailed Records
  Invoices, mileage logs, expense tracking, notes from client conversations all show you’re taking the business seriously.
• Market Your Services or Products
  Even basic social media, a website, or regular promotions help prove you’re making an effort to grow.
• Document Your Strategy
  Keep a business plan or outline of how you plan to grow revenue. Even if it’s simple, it shows intention.
• Be Consistent
  Work on your business regularly even part-time and track your progress over time.