Turning a side hustle into extra income can be exciting, but tax reporting can quickly become confusing. As a self-employed Canadian, I’ve learned that one of the smartest ways to make your side business more profitable is to understand which legitimate expenses you can deduct. In this way, you can lower your net income that’s subject to taxation. The key is simple: if an expense is reasonable and incurred to earn business income, you can generally deduct the business portion.
Source: Getty Images
Common side hustle expenses you can deduct
Many everyday costs may qualify as business expenses. Depending on your side hustle, these can include advertising and marketing (such as business cards and online ad campaigns), office supplies, accounting and legal fees, business insurance, software, professional fees, licences, bank charges, telephone expenses, and supplies used to provide your products or services.
If you work from home, you may also be able to claim a portion of eligible household costs. The Canada Revenue Agency (CRA) allows business-use-of-home expenses when your home is your principal place of business, or when you use the space exclusively to earn business income and regularly meet clients there. Depending on your circumstances, eligible costs can include utilities, home insurance, property taxes, mortgage interest, and certain maintenance expenses.
Your vehicle can be another valuable deduction. If you use your car for business and personal purposes, you can generally deduct the business portion of eligible costs such as fuel, insurance, repairs, licence fees, interest, and leasing costs. Keep accurate records of your total and business kilometres.
Watch the limits and keep your receipts
Not everything is fully deductible. Meals and entertainment are generally limited to 50% of the lesser of the amount spent or an amount considered reasonable. Business travel can be deductible, including transportation and accommodation, but meal costs generally remain subject to the 50% rule.
Also remember that personal expenses are not business expenses. If you purchase something partly for your side hustle and partly for yourself, claim only the reasonable business portion. Larger purchases that are capital property generally aren’t deducted immediately; instead, they may qualify for capital cost allowance (CCA).
Good recordkeeping is just as important as knowing the rules. Keep invoices, receipts, contracts, bank records, and other documentation supporting your claims. The CRA generally requires business records to be retained for at least six years.
Invest this income for more income
Each dollar saved from taxes is a dollar safe in your pocket. You can invest the extra income you earn from your side hustle to boost your long-term income.
For example, a blue-chip stock to consider buying on dips is Fortis (TSX: FTS). The regulated electric and gas utility has one of the longest dividend growth streaks on the Toronto Stock Exchange, having raised its dividend for over 50 consecutive years.
At $75.25 per share at writing, the dividend stock offers a dividend yield of 3.4%, with the analyst consensus price target suggesting the stock is fairly valued. For now, the utility stock projects rate-base growth of about 7% per year, which supports healthy targeted dividend growth of 4–6% per year through 2030. It’s a simple buy-on-dips-and-forget stock for a diversified portfolio for long-term investing.
The bottom line
A successful side hustle isn’t just about earning more — it’s about keeping more of what you legitimately earn. Track business expenses throughout the year, separate personal and business spending, understand deduction limits, and maintain solid records.
These habits can make tax season easier while helping you take full advantage of deductions you’re entitled to claim. For complicated situations, getting advice from a Canadian tax professional can be money well spent.
Your tax savings can pool with your regular savings and be invested to help grow your long-term wealth.
