This is the Canadian income tax guide for TikTok creators earning income.
Disclosure: This is not official tax advice. Always perform your own research and consult with a CPA/tax expert.
Do TikTok creators have to pay taxes?
Yes. TikTok creators have to pay taxes on all income associated with being a creator. Income attributable to a TikTok business may include TikTok creator fund income, sponsorship income, merchandise sales, affiliate sales, and/or ad revenue.
Are free products received considered income?
Yes. If you receive free products to promote on your TikTok channel or other social media channels, this can give rise to income. Even though you have not received any cash, you have still received an income inflow and must declare the fair market value of the goods as income. The fair market value is often the price you would have had to pay for the products had you not received them for free.
Is being a TikTok creator (“TikToker”) considered a business?
Yes. As a creator on TikTok, you are deemed to be carrying on a business in the eyes of the Canada Revenue Agency (CRA). Therefore, you must report all earnings associated with your TikTok business as gross business income. You are then entitled to various deductions to bring down your overall net income for business purposes.
Types of Business Entities
A sole proprietorship is an unincorporated business that is owned by one individual. It is the simplest kind of business structure.Canada Revenue Agency
If you are a sole proprietor, you pay personal income tax on the net income generated by your business.
You may choose to register a business name or operate under your own name or both.
A common question that we get asked is “Are TikTok creators sole proprietors?”. In most circumstances, the answer is yes, TikTokers are sole proprietors. By default, people who make money from TikTok will be considered a sole proprietor and will be required to report their TikTok income as business income.
A sole proprietorship is the most common form of business entity for independent TikTok creators. As a sole proprietor, your TikTok income is reported on your personal income tax return (T1) under form T2125 “Statement of Business or Professional Activities”. You may simply use your name as the business name. The NAICS (North American Industry Classification System) code 519130 “Internet Publishing and Broadcasting and Web Search Portals” should serve as an appropriate code for a TikTok creator.
Completing Form T2125
You may simply use your name as the business name. The NAICS (North American Industry Classification System) code 519130 “Internet Publishing and Broadcasting and Web Search Portals” should serve as an appropriate industry code for TikTok creators.
Internet Business Activities
On form T2125, you must list all appropriate websites from which your income is derived. As a TikTok creator, the most obvious will be TikTok.com, however, any additional income streams associated with this business must also be disclosed, which may include Shopify.com or Amazon.com, if these are platforms from which you derive additional income.
Reporting Business Income
The next parts of the form require you to report your gross income received through your business. If you get paid in USD, you must convert the USD amounts using the annual average exchange rate retrieved from the Bank of Canada. Additionally, any goods received through the course of your TikTok business also need to be declared as income at their fair market value, so don’t forget about that makeup kit you received in exchange for a brand shoutout on your channel or social media accounts.
Claiming Business Expenses
As a business, you are entitled to deduct expenses that you may incur to earn income from your activities. For common business expenses as a TikTok creator, please see the Common Business Expenses and Deductions section below. Depreciable property such as a building, furniture, or equipment used in the course of your business cannot be fully deducted in the year in which they are purchased. Instead, the cost of these properties will be deducted over the course of several years at a rate determined by the Canada Revenue Agency, known as a Capital Cost Allowance (CCA) rate. Typical CCA rate categories are listed under the Capital Cost Allowance section below.
Common Business Expenses and Deductions
Listed below are some common business expenses that a TikTok creator may incur during the course of their business.
- Business use of home: if you film inside your home, have a dedicated studio space, and/or use your home as a workspace to edit and upload your TikTok videos, you can claim a portion of all of the expenses that contribute to maintaining your house – including property taxes, heat, electricity, insurance, maintenance, and mortgage interest
- Office expenses: any expenses incurred in the course of maintaining the business-side of your TikTok channel are deductible – including pens, printer paper, toner, and business bank account fees
- Internet: the costs you pay to your internet service provider (ISP) are deductible at the percentage used for your TikTok business (ie. 50%)
- Cell phone: your cell phone bill is also deductible at the percentage used for your TikTok business
- Professional fees: any fees associated with experts you’ve hired in the course of your TikTok business, for example, the costs associated with a CPA you’ve hired to help with your taxes, are deductible
- Vehicle & mileage: costs associated with travel via automobile for business purposes are deductible to an extent
- Travel: other travel costs (hotel room, airfare, Uber, car rental) associated with TikTok conferences or other destinations directly relevant to your TikTok business may be deductible
- Data storage & subscriptions: purchases of external hard drives or cloud storage subscriptions are deductible when used for the purpose of storing video footage; additionally, any ongoing subscriptions relevant to your TikTok channel, such as royalty-free music licensing services, are deductible
- Advertising: costs associated with advertising your TikTok channel are deductible, other acceptable costs under this category may include the cost of contests and giveaway prizes
- Software: the purchase of professional video editing software used for TikTok may be completely deductible (may be a capital asset depreciable under CCA)
Capital Cost Allowance
Depreciable property such as a building, furniture, or equipment used in the course of your business cannot be fully deducted in the year in which they are purchased. Instead, the cost of these properties will be deducted over the course of several years at a rate determined by the Canada Revenue Agency, known as a Capital Cost Allowance (CCA) rate. Listed below are a few examples of CCA categories and rates for common purchases a TikTok creator may make.
- Cameras and Video Recording Equipment: Class 8 (20%) costing $500 or more, otherwise Class 12 (100%)
- Photocopiers and Printers: Class 8 (20%)
- Laptops, iPads, iPhone: Class 50 (55%)
- Furniture: Class 8 (20%)
- Video Software, Accounting Software (ie. QuickBooks): Class 12 (100%)
- Passenger Vehicle: Class 10.1 (30%)
April 30 – any balances owing due to CRA
June 15 – T1 return filing deadline
Sales Tax (GST/HST)
You do not need to register for GST/HST if you make under $30,000 gross when you are a sole proprietor over 4 consecutive calendar quarters. However, there can be some benefit in registering before this income milestone – referred to as “voluntary registration”. As a majority of your income will be derived from non-resident corporations, such as TikTok, your income on their platform is considered “zero-rated”. Thus, you are collecting sales tax effectively at a rate of 0%, but you are still able to claim any input tax credits (ITCs), meaning you are eligible to recover the GST/HST paid or payable on your purchases and operating expenses. Sales tax returns are required to be filed annually, quarterly, or monthly, depending on sales volume.
If you choose not to register, you do not charge the GST/HST (other than on certain taxable supplies of real property) and you cannot claim ITCs.Canada Revenue Agency
TikTok and other companies will not withhold taxes on earnings by a Canadian resident. Thus, it is your responsibility to ensure you appropriately manage your earnings and put away sufficient funds to pay your tax bill come April. You may estimate your future tax obligation and marginal tax rate through WealthSimple’s calculator. We recommend maintaining a separate bank account, perhaps a high-interest savings account, and putting away a percentage of your earnings based on your average tax rate, each time you’re paid.
Tax Best Practices
- Find a reputable tax accountant and work with them throughout the year to ensure you meet your filing obligations and are prepared come tax season.
- Use an accounting software or find a bookkeeper (virtual bookkeepers are becoming more common) to help you keep your finances in order all year long. This reduces the burden of needing to compile and calculate all of your expenses during tax season.
- Open a separate bank account where income payments are deposited and funds for expenses will be drawn from. This ensures a hard line is drawn between personal and business activities and increases the odds of a favorable audit.
- Similarly, use a separate credit card for business purchases only to ensure clean recordkeeping.
- Take advantage of technology – use your phone to scan and create copies of all expense documentation.