Many Canadians use their free time to take on freelance jobs and other after-hours work to earn immediate cash and stretch their budget. However, side income is taxed, too, not just regular income. The Canada Revenue Agency (CRA) requires you to report every dollar earned, even from a small side gig, on your tax return.
Taxation begins after you’ve used up the maximum federal Basic Personal Amount (BPA). For 2026, the BPA tax-free threshold is $16,452. If your combined income from your primary job and side hustle is less than the BPA, you pay $0 in federal income tax. Often, a day job fully exhausts the BPA threshold, so your secondary income is taxed at the applicable federal and provincial marginal rate.
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Variable non-refundable tax credit
Every Canadian taxpayer is entitled to the BPA, a non-refundable tax credit every tax-filing year. However, the exact amount of the non-refundable tax credit you can claim varies. You are eligible for the full $16,452 maximum BPA threshold for 2026 if your net income is $181,440 or less.
The BPA gradually reduces for net incomes between $181,440 and $258,482. Your available BPA drops to the base threshold of $14,829 if net income is above $258,482. Note that federal tax rates are uniform across Canada. However, each province and territory has its own bracket thresholds and tax rates.
Minimize your tax bill
While the tax-free zone is limited to the BPA, Canadians can legally minimize taxes on side income. Use the Registered Retirement Savings Plan (RRSP), the Tax-Free Savings Account, or both to keep the CRA at arm’s length.
The RRSP is a tax-deferred investment account where contributions are tax-deductible. Contribute to the RRSP to offset the tax bite and reduce your total net taxable income. Money and earned income inside the account grow tax-free but are taxed when you withdraw them. Withdraw funds during retirement when your tax bracket is much lower.
TFSA contributions aren’t tax-deductible, but the account is tax-sheltered throughout your lifetime. All interest, capital gains, and investment income earned inside the account are 100% tax-free. You can withdraw TFSA income anytime without tax consequences if you need capital for your side hustle or business.
Anchor stock holding
Whether you’re offsetting the tax bite on side income or creating a tax-free passive stream, you need an anchor stock holding. TC Energy (TSX: TRP) is suitable for an RRSP and TFSA. This $88.5 billion company is a major natural gas and energy pipelines operator in North America. It has raised its dividends for 26 consecutive years, with future dividend growth guidance of 3% to 5%.
TRP trades at $87.32 per share and offers a 4% annual dividend, paid quarterly. Because about 98% of comparable EBITDA comes from rate-regulated assets or long-term take-or-pay contracts, earnings and cash flows are predictable and inflation-protected.
The maximum $33,810 RRSP contribution limit for 2026 is tax-deductible, provided it matches the contribution room on your Notice of Assessment. Meanwhile, a TFSA with the same amount, invested in TC Energy, will generate $1,352.40 annually, or $338.10 tax-free every month.
Play it smart
Taxes are unavoidable, even in side income or gig work. Use your RRSP and TFSA contribution room strategically to save and invest and minimize the tax bite.
