Side Hustles And Tax On Extra Incomes
A research report led by Securian Canada1 from October 2024 revealed that more than one in five Canadians, or about 7.3 million adults in Canada, participate in the gig economy. Further, the study revealed that almost three-quarters of them do gig work as a “side-hustle”, meaning they are also employed full-time or part-time.
Why Do So Many Canadians Have Side Hustles?
There are a variety of reasons Canadians provide for wanting (or needing) a second job. According to research by Edward Jones Canada2 conducted earlier in 2025, Canadians are most concerned with the rising cost of living, insufficient income from their day jobs, and their inability to save enough to retire when and how they desire. Other reasons Canadians spend their free time working included for fun, or to develop a new skill, while they transition to a new career.
How Does Income Tax On Side Hustles Work?
Even if it’s earned while having fun or learning something new, nearly all earned income in Canada is subject to income tax. Depending on what type of gig work you do, taxes may not be withheld from your earnings, but this doesn’t exempt them from being taxable. It’s up to the taxpayer to report all income when filing.
Further, tax withheld by your employer is estimated to be the tax you would owe if that were your only job, so it is possible that side-hustlers—those with second jobs—will have to pay tax when filing.
Average Tax Rate And Marginal Tax Rates
Your average tax rate is the rate of tax you pay on your total income, calculated as the total tax you pay divided by your total income (including side-hustle earnings.)
Your marginal tax rate is the rate of tax you pay on the next dollar you earn. Your marginal tax rate is usually higher than your average tax rate.
Why Side Hustles May Be Subject To More Tax
In a graduated tax system like Canada’s, side-hustlers who do extra work on top of full or part-time jobs could be subject to higher tax rates on that extra income. Here’s why:
Consider Fatima, who works as a marketing coordinator Monday to Thursday in Ontario and earns $55,000 per year at that job. Her combined federal and provincial marginal tax rate is 24.15%, and taxes and deductions are withheld by her employer. Since Fatima doesn’t pay 24.15% on all her income3, her average tax rate is 21.34%.
Fatima spends Fridays and weekends walking dogs. While this is Fatima’s hobby, she is paid for this. She also occasionally boards dogs when their owners travel. Fatima earns $15,000 per year walking and boarding dogs. Since her clients pay her directly, tax is not withheld.
Fatima’s total income from all sources is $70,000. Her marginal tax rate is 29.65%. This does not mean that all her income is taxed at the higher rate; only the income that she earned above $57,375 is subject to this higher rate. Therefore, $2,735 of her dog-walking earnings are subject to 24.15%, and the next $12,265 is taxed at 29.65%. Fatima’s average tax rate on her total income is 24.84%.
Could There Be More Tax?
If Fatima has any additional sources of income like interest income, is paid any dividends or realizes any gains from investments, she could be subject to additional tax, but those details are out of the scope of this article.
Tax Deductions
Some side-hustlers may require supplies or subscriptions to conduct their business. These folks may be able to claim reasonable expenses against their self-employment income, which may reduce their income tax burden. Speak with your accountant to determine what is considered an eligible expense and how to claim expenses against side-hustle income.
Whether you’re working more because it brings you joy, because you want to retire early, or because it reduces the stress you have about keeping up with inflation, more income usually means more tax.
Julie Petrera, MBA, CFP, CIM is a certified financial planner. X: @petrerajulie
Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your lawyer or qualified tax advisor regarding your situation or any specific questions you may have. This content is subject to change and should not be depended upon for other than broadly informational purposes. Specific questions should be referred to a qualified tax professional.
1 https://www.securiancanada.ca/content/dam/doc/sc/securian-canada-gig-report-100824.pdf
2 https://www.edwardjones.com/sites/default/files/acquiadam/2025-06/MKT-19591-C.pdf
3 https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html#toc1