Recently, the CRA has started to pursue onlyfans audits. These days it is becoming more and more common for the average person to engage in self-employment, either as a side hustle in addition to their regular day job, or even as a full-time endeavour. Often times, it can be difficult to navigate one’s tax obligations as a self-employed individual and taxpayers can understandably mistake what must be reported as income and what they can claim as business expenses or deductions. For more traditional self-employment businesses like Uber, Lyft, or AirBnB, there is luckily some guidance in this regard (see our article).
However, other businesses have spawned a new set of considerations for self-employed taxpayers. Businesses that rely on selling creator generated content, such as Onlyfans, Snapchat premium, Fiver (and their alternatives), can pose unique challenges when it comes to specifying income and expenses. What’s more is the Canada Revenue Agency (CRA) has recently started pursuing creators for unreported income, and they are likely to ramp up enforcement in the near future. This article will briefly outline the filing requirements for self-employed creators and discuss how to avoid having the CRA take action against you and your business.
Onlyfans Audits and Self Employed Taxpayers – Filing Obligations
Creators should normally include with their tax filings a Statement of Processional or Business Activities form, also called a T2125 form. To complete your return, you will need to gather information on your income and your expenses. Income is relatively straightforward and will include any amounts received by virtue of your business, such as profits made by selling products or services. One thing to note is that “donations” or “gifts” that creators receive from their fans may be viewed differently by the CRA, with them attributing it to the income of the business.
Expenses are a more complicated matter (see our full article here) but generally a business can deduct expenses incurred for the purposes of earning income. In a creator’s case, usual expenses can include costs incurred to purchase camera equipment, maintain subscriptions to video editing software, or even to hire a video editor. However, where expenses demonstrate more elements of a personal rather than a business benefit, difficulties can arise. For instance, the purchase of clothing or the cost of a plane ticket, which can be useful for earning business income, could also be incurred regardless of the business for the creators personal pleasure.
Recently, the CRA has started to pursue onlyfans creators for unreported income. This is normally accomplished through an audit, the beginning of which starts with a letter and an audit questionnaire. These audit questionnaires are somewhat lengthy documents mailed out by the CRA that seek a range of information on a creator’s business. The CRA has recently started sending out audit questionnaires tailored specifically to Onlyfans creators and request information on:
- Revenue expectations of creators;
- The location of the place of business i.e. rented studio, home office, or both;
- Initial investments required of the business such as purchasing equipment or supplies;
- The specific schedule of the business as well as total time involvement;
- Products and services offered e.g. photos, videos, phone calls, private chats;
- The price of subscription fees and each individual service or product;
- Business growth over time;
- Whether the business has employees other than the creator;
- Whether a creator has collaborated with other creators; and
- Whether creators promote brands or receive sponsorship products.
As a creator, it’s a good idea to maintain records of this information from year to year and note any changes over time. This will ensure the accuracy of your filings and simplify the response process if an audit does occur. If you receive an audit letter we are here to help!
Onlyfans Audits – What if Past Filings were Wrong?
If you are a creator and you think you may have failed to report your income to the CRA based on the above, it is possible, and likely you will face an audit at some point in the near future. Luckily you may be able to avoid an audit by proceeding under the Voluntary Dislcosure Program offered by the CRA. This amnesty program is only available if you meet certain requirements, including disclosing your unreported income before the CRA becomes aware of it on their own. That is why time is of the essence if you want to proceed with this option. For the future, you may also consider incorporating your business if you have not already done so, as this will provide some protection from personal liability for any debts incurred and can be a method of paying less in taxes. These processes can be daunting and time sensitive, so do not hesitate to contact us if you think you may need assistance in filing a voluntary disclosure, incorporating, or if you’re being audited by the CRA for your onlyfans or other content creation account!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.