Started a side hustle? Freelancing, selling online, driving for Uber, or running a small business on the side? Congratulations — you're now self-employed in the eyes of the CRA, and you have new tax obligations. Here's everything you need to know to stay compliant and minimize what you owe.
How to Report Side Hustle Income on Your T1
All income must be reported on your T1 General tax return, regardless of amount. Here's how different income types are reported:
| Income Type | Form | Notes |
|---|---|---|
| Employment (T4) | Line 10100 | Your main job, employer withholds tax |
| Self-Employed (Side Hustle) | T2125 → Line 13500 | Business or professional income, deduct expenses |
| Rental Income | T776 → Line 12600 | Rent received, deduct property expenses |
| Investment Income | Line 12100 (interest), 12000 (dividends) | T3, T5 slips from banks/brokers |
| Other Income | Line 13000 | CERB repayments, scholarships, etc. |
CRA Red Flag: Unreported Income
The CRA receives copies of T4A, T5, and payment processor data (Stripe, PayPal, etc.). If you don't report income they know about, expect a reassessment, penalties, and interest. ALWAYS report all income — even cash payments.
Calculate Your Side Hustle Tax
Use our calculator to estimate your total tax owing, including CPP on self-employed income. This shows your combined employment income + side hustle net income + CPP obligations.
Side Hustle Income Tax Calculator
Calculate your total tax including CPP obligations on self-employed income
Your Tax Breakdown
Note: CPP is calculated on net self-employment income above $3,500. You pay both employer and employee portions (11.9% total). Set aside tax throughout the year to avoid surprises at tax time.
Get the Free Side Hustle Tax Checklist
Download our complete side hustle tax guide including deductible expense tracker, mileage log template, and CRA audit-proof record keeping system.
100% free. No spam.
Real-World Examples
Graphic Designer Freelancing on the Side
Side hustle qualifies as a business
Scenario:
- •Lisa, 32: Full-time marketing job ($70,000) + freelance design work
- •Side hustle revenue: $18,000 in 2026
- •Deductible expenses: Software ($800), laptop ($1,200), courses ($600), home office ($1,500)
Tax Calculation:
- Employment income:$70,000
- Side hustle revenue:$18,000
- Less: Business expenses:-$4,100
- Net self-employment income:$13,900
- Total taxable income:$83,900
- CPP owing (11.9% on $13,900):~$1,654
- Income tax on side hustle (~31% marginal):~$4,309
Result: Lisa owes ~$5,963 on her side hustle. She should set aside 40-45% of her net income for taxes and CPP.
Uber Driver Part-Time
Track mileage for deductions
Scenario:
- •Marcus, 45: Teacher ($65,000) + Uber driving evenings/weekends
- •Uber earnings: $12,000 in 2026
- •Business km driven: 18,000 km (CRA rate: $0.70/km for first 5,000, $0.64/km after)
Tax Calculation:
- Uber revenue:$12,000
- Mileage deduction (18,000 km):-$11,820
- Net self-employment income:$180
Result: Marcus owes almost no tax on his Uber income because his mileage deduction covers nearly all revenue. This is why tracking mileage is critical for rideshare/delivery drivers.
Etsy Seller (Hobby vs Business)
Occasional sales = hobby, no deductions
Scenario:
- •Sarah, 28: Accountant ($55,000) + sells handmade jewelry on Etsy
- •Etsy sales: $2,500 in 2026 (15 items sold)
- •Materials cost: $1,800
CRA Classification: Hobby
Sarah makes jewelry for fun and sells occasionally. She doesn't advertise, doesn't keep inventory, and doesn't run it like a business. The CRA would likely classify this as a hobby.
- Hobby income (report on Line 13000):$2,500
- Expenses NOT deductible (hobby):$0
Result: Sarah pays tax on the full $2,500 because hobbies don't allow expense deductions. If she ran it as a business (advertising, regular sales, profit motive), she could deduct the $1,800 in materials and only pay tax on $700.
Frequently Asked Questions
Frequently Asked Questions
Q:Do I need to report side hustle income under $5,000?
A:Yes, you must report ALL income to the CRA, even if it's under $5,000. There's no minimum threshold for reporting self-employed income. However, if your gross income is under $30,000 annually, you don't need to register for GST/HST. Report your side hustle income on Form T2125 (Statement of Business Activities) as part of your T1 General tax return.
Q:When is side income considered a business vs a hobby?
A:The CRA considers it a business if you have a reasonable expectation of profit, run it in a businesslike manner, keep records, spend significant time on it, and have a history of profit or profit potential. Hobbies are occasional and for personal enjoyment. If it's a business, you can deduct expenses. If it's a hobby, you cannot. The key test: are you trying to make money, or is it primarily for fun?
Q:What side hustle expenses can I deduct?
A:You can deduct expenses that are reasonable and directly related to earning income: supplies and materials, equipment and tools, courses and professional development, home office expenses (if you have a dedicated workspace), mileage and vehicle expenses, software subscriptions, advertising and marketing, professional fees (accountant, lawyer), and a portion of internet/phone if used for business. You CANNOT deduct personal expenses, meals with family, or entertainment not directly related to business development.
Q:Do I have to pay CPP on my side hustle income?
A:Yes, if your net self-employment income is over $3,500, you must pay CPP contributions. Unlike employees who split CPP with their employer, self-employed individuals pay BOTH the employee and employer portions — a total of 11.9% (2026 rate). You calculate and pay this when you file your tax return. The good news: CPP contributions build your retirement pension and disability coverage.
Q:Can I deduct my home office for my side hustle?
A:Yes, if you have a dedicated workspace in your home used regularly and exclusively for your business. You can deduct a portion of: rent or mortgage interest, property taxes, utilities, home insurance, and maintenance costs. The deduction is based on the percentage of your home used for business (e.g., if your office is 10% of your home's square footage, you can deduct 10% of eligible expenses). You CANNOT deduct the full cost if you use the space for personal activities too.
Q:Do I need to register a business name or get a business number?
A:It depends. You don't need to register if you operate under your own legal name (e.g., 'Jane Smith Consulting'). If you use a business name (e.g., 'Bright Ideas Design'), you must register it provincially. You need a CRA Business Number if: your gross income exceeds $30,000 (for GST/HST registration), you want to hire employees, or you want to import/export goods. Most small side hustles under $30,000 don't need formal registration.
Question: Do I need to report side hustle income under $5,000?
Answer: Yes, you must report ALL income to the CRA, even if it's under $5,000. There's no minimum threshold for reporting self-employed income. However, if your gross income is under $30,000 annually, you don't need to register for GST/HST. Report your side hustle income on Form T2125 (Statement of Business Activities) as part of your T1 General tax return.
Question: When is side income considered a business vs a hobby?
Answer: The CRA considers it a business if you have a reasonable expectation of profit, run it in a businesslike manner, keep records, spend significant time on it, and have a history of profit or profit potential. Hobbies are occasional and for personal enjoyment. If it's a business, you can deduct expenses. If it's a hobby, you cannot. The key test: are you trying to make money, or is it primarily for fun?
Question: What side hustle expenses can I deduct?
Answer: You can deduct expenses that are reasonable and directly related to earning income: supplies and materials, equipment and tools, courses and professional development, home office expenses (if you have a dedicated workspace), mileage and vehicle expenses, software subscriptions, advertising and marketing, professional fees (accountant, lawyer), and a portion of internet/phone if used for business. You CANNOT deduct personal expenses, meals with family, or entertainment not directly related to business development.
Question: Do I have to pay CPP on my side hustle income?
Answer: Yes, if your net self-employment income is over $3,500, you must pay CPP contributions. Unlike employees who split CPP with their employer, self-employed individuals pay BOTH the employee and employer portions — a total of 11.9% (2026 rate). You calculate and pay this when you file your tax return. The good news: CPP contributions build your retirement pension and disability coverage.
Question: Can I deduct my home office for my side hustle?
Answer: Yes, if you have a dedicated workspace in your home used regularly and exclusively for your business. You can deduct a portion of: rent or mortgage interest, property taxes, utilities, home insurance, and maintenance costs. The deduction is based on the percentage of your home used for business (e.g., if your office is 10% of your home's square footage, you can deduct 10% of eligible expenses). You CANNOT deduct the full cost if you use the space for personal activities too.
Question: Do I need to register a business name or get a business number?
Answer: It depends. You don't need to register if you operate under your own legal name (e.g., 'Jane Smith Consulting'). If you use a business name (e.g., 'Bright Ideas Design'), you must register it provincially. You need a CRA Business Number if: your gross income exceeds $30,000 (for GST/HST registration), you want to hire employees, or you want to import/export goods. Most small side hustles under $30,000 don't need formal registration.
Related Canadian Money Guides
Need Help with Side Hustle Tax Planning?
Our Certified Financial Planners can help you set up proper record keeping, maximize deductions, and avoid CRA audits.
Book Free Consultation