Back in 2021, the CRA announced a program they had developed aimed at social media influencers and others generating revenue from online content creation. They first began a campaign to raise awareness and educate content creators about their tax obligations, and to let them know that they were ready with special auditors and data-mining software aimed at gathering evidence of unreported income.
Since that time, the CRA has conducted numerous audits on Canadians making money in the sharing economy using platforms like Airbnb, the gig economy on apps like Doordash, peer-to-peer sales through Amazon and the like, and social media influencers using Twitch, YouTube, and, of course, OnlyFans.
It’s crucial to know that even if it’s only a side hustle, or if you’re losing money on your online venture, you must register as a business with the CRA and report all revenue you earn. These are just two of the reasons why, if you’re making money on OnlyFans or other sites or apps, you can really benefit by getting help from tax experts to help you save money, keep you in legal compliance, and remove the stress of filing taxes.
Paying Taxes on Income from OnlyFans
All income earned from OnlyFans, whether in the form of subscriptions or tips, is considered taxable income in Canada. It is crucial to keep accurate records of your earnings, including bank statements, PayPal transactions, or any other payment statements related to your OnlyFans activities. You need this documentation when filing your tax return.
OnlyFans has gained immense popularity in recent years as a platform that allows creators to monetize their content. This hasn’t gone unnoticed by the CRA.
Besides the big data-driven software they use that can fairly accurately detect unreported and underreported income on tax returns based on demographic info like your address, occupation, assets, etc., the CRA also uses programs that crawl social media pages looking for evidence of a lifestyle and possessions inconsistent with filed tax returns.
In other words, if you haven’t registered as a business or accurately reported your income, don’t take chances; reach out to experienced tax accountants who can help.
Registering Your OnlyFans Business
Before you start any business, as a drywaller, lawyer, or content creator, you need to register that business with the CRA, and you’ll be given a business number for tax reporting purposes. However, when you register, you’ll be asked the type of business structure you’re using and your business name and address.
In a nutshell, there are three types of business structures:
- Sole proprietorships
The most commonly used structure for individuals operating their own businesses, such as professionals and contractors, is a sole proprietorship. In this setup, the income earned, and expenses incurred are reported on the individual’s personal tax return. Registering a sole proprietorship is a straightforward and cost-effective process.
A partnership can be seen as a sole proprietorship involving two or more individuals. The partners divide the income and expenses among themselves and report them separately on their personal tax returns. Registering a partnership with the CRA (Canada Revenue Agency) is also relatively simple.
Corporations offer the highest level of financial and legal protection to their owner(s) and generally have lower tax liabilities. However, establishing and registering a corporation typically requires the services of an accountant or a lawyer.
While many self-employed individuals simply register as a sole proprietorship, it’s always better to get a professional income tax assessment before registering your business, as another structure may be better in your financial situation.