Published: June 28, 2023
The broad category of sex work in Canada includes a variety of jobs, such as phone sex operators, exotic dancers, sex product manufacturers, strip club management, pornographic performers, webcam models such as Onlyfans performers, and prostitutes. Despite the wide range of jobs, tax requirements are a commonality among all Canadian sex workers. Particularly, independent sex workers would be required to apply for a GST number and collect GST (together with any applicable province sales taxes, such as HST) from customers for the services or items they offer.
The purpose of this article is to offer a complete explanation of the GST/HST obligations for self-employed sex workers who act as sole proprietors, partners in a partnership, or private company owners. It also finishes with useful tax advice suited to the special conditions of Canadian sex workers.
Taxable Supply and Requirement to Register for GST/HST for Sex Workers in Canada
Every receiver of a taxable supply made within Canada is subject to GST/HST, under Section 165 of the Excise Tax Act. The provision of products or services as a component of a business operation, including the exchange of sexual services for compensation, is referred to as a taxable supply. In plainer terms, this indicates that the majority of business transactions, including those involving sexual services, are liable to GST/HST.
The person receiving the goods or services (i.e., the buyer) is responsible for paying the GST/HST, whereas the supplier is responsible for collecting and remitting the tax. A supplier is exempt from collecting GST/HST, nevertheless, if their yearly gross income is under $30,000. On the other hand, a Canadian company is required to apply for a GST/HST number and start collecting the tax from customers who purchase products or services if their gross international sales are $30,000 or more. If these duties are not met, there might be tax fines, interest that has accumulated, and even tax evasion charges.
The Canada Revenue Agency (CRA) requires self-employed sex workers to register for a GST/HST number if their gross income is $30,000 or more. With the use of this registration, they are allowed to add a GST/HST fee to their products and services, which must subsequently be collected and paid to the CRA. The worker must set up an accounting system as well in order to keep track of financial transactions and guarantee compliance with things like OnlyFans taxation. There’s always a chance that the CRA will audit your tax filings.
The sex worker may be able to claim GST/HST payments made to business vendors as input tax credits (ITCs). This results in a decrease in the net GST/HST due to the Canada Revenue Agency. GST/HST paid on commercial rent, internet services, and mobile phone use for business purposes are a few examples of costs that can be claimed for an ITC.
OBLIGATION TO FILE GST/HST REPORTS FOR SELF-EMPLOYED SEX WORKERS IN CANADA
Even if there was no income or no net GST/HST payable during the reporting period, a self-employed sex worker is still needed to file GST/HST returns if he or she is required to register for GST/HST.
The time limits for filing returns and making payments of the net GST/HST amount depend on whether the GST/HST reporting periods are monthly, quarterly, or annual.
- The GST/HST return and net GST/HST payable for the month must be submitted by the end of the following month for monthly reporting periods.
- The GST/HST return and net GST/HST payable for a quarterly reporting period are due one month after the end of the quarter.
- The GST/HST return and net GST/HST payable for yearly reporting periods of incorporated enterprises must be submitted within three months of the fiscal year’s end.
- The GST/HST return is due by June 15th of the following year for annual reporting periods of sole proprietorships, while the net GST/HST payable is required by April 30th of the following year, coinciding with income tax filing and payment deadlines.
- The reporting period’s length is determined by the company’s annual sales during the previous fiscal year. A company with annual revenue of $1.5 million or less has the option of selecting an annual, quarterly, or monthly reporting period for GST/HST. The business may select a quarterly or monthly reporting period if its annual revenue is over $1.5 million but not more than $6 million. If a company made more than $6 million in revenue during the preceding fiscal year, a monthly reporting period is required.
Directors of an incorporated business in the sex industry are liable for any unpaid GST or HST
It is essential to understand that a business has its own unique legal existence in this situation. As a result, the corporation’s requirements, rights, and liabilities are distinct from those of its shareholders, directors, and staff. The creditor may file a lawsuit against the company in order to recoup the unpaid debt, for instance, if it doesn’t pay back a loan or make rental payments as agreed. Due to the fact that the corporation, not the shareholders, received the loan or signed the lease agreement, the shareholders are typically not held personally liable for these obligations. It should be pointed out that if a shareholder has given a personal guarantee to the lender or landlord, his or her liability would result from being a guarantor rather than from his or her standing as a shareholder.
The Canada Revenue Agency has the right to hold the director of a corporation accountable for any unpaid GST/HST debts, thus it’s crucial for sex workers who own and run incorporated businesses to be aware of this. The directors of the corporation at the time of the remittance obligation are subject to vicarious tax responsibility under subsection 323(1) of the Excise Tax Act if the corporation fails to remit the requisite GST/HST amounts. The unremitted GST/HST of the corporation is now the responsibility of each director jointly and severally. In essence, the sex worker may individually take the burden for such GST/HST duties as the director of an incorporated business with unpaid GST/HST outstanding balances.
Pro tax tips: Using the Voluntary Disclosures Program to Rectify Non-Compliance, Increasing Input Tax Credits, and Minimizing Director Liability
As previously indicated, by claiming input tax credits (ITCs), those who operate in the adult entertainment sector may be able to lower the amount of net GST/HST they owe to the Canada Revenue Agency (CRA). The ITC amount is equivalent to the GST/HST that the sex worker paid to his or her business suppliers. Toys, pornography, stripper poles, lingerie, condoms, makeup, leather bondage apparel, sex toys, pornographic material, lingerie manufacturing or importation, home renovations to create a BDSM or dominatrix dungeon, internet and service costs related to running a webcam sex show, and other expenses may be eligible for ITCs depending on the specific activities involved in the sex worker’s business.
Specific criteria must be satisfied by the sex worker in order for him or her to be eligible for an input tax credit (ITC). He or she must have, for instance, been a registered GST/HST participant throughout the reporting period during which the GST/HST was paid or became due. The sex worker must also have appropriate documentary proof to back up his or her ITC claim, which is equally important. In addition to assisting in comprehending the eligibility requirements for claiming and optimizing ITCs, our team of experienced Canadian tax lawyers can provide insightful counsel on the advantages of GST/HST registration.
A sex worker may be held personally accountable for the debt if he or she is a director of a company with unpaid GST/HST obligations. The Excise Tax Act specifies a two-year limitation period during which a director may be held liable for the GST/HST debt of a firm. A director cannot be assessed by the Canada Revenue Agency (CRA) for GST/HST arrears “more than two years after the person last ceased to be a director of the Corporation.” The sex worker can resign from his or her position as a director in order to lessen their exposure, which will start the two-year limitation period. But it is crucial to make sure the resignation conforms with the rules of the applicable corporate law. The sex worker must also stop doing any duties that are specific to the director’s position after resigning. Even after a lawful resignation, the sex worker could still be subject to a director’s liability assessment if he or she doesn’t stop performing directorial tasks. To make sure that a director’s resignation is both legally acceptable and able to survive examination by the CRA, it is important to get advice from one of our knowledgeable Canadian tax lawyers.
There may be financial tax fines and potentially criminal tax prosecution if a sex worker fails to comply with his or her GST/HST requirements. Utilizing the Canada Revenue Agency’s (CRA) Voluntary Disclosures Program, which exempts qualifying taxpayers from fines and prosecution, is a good alternative in many circumstances. Numerous taxpayers have benefited from the effectiveness of our team of skilled Canadian tax lawyers in avoiding penalties by utilizing this program. Consult with a knowledgeable Canadian tax lawyer from our team if you have questions regarding your eligibility or want to explore other possibilities. Taxpage is proud to be a leading Canadian tax law firm, and the Taxpage.com blog has been recognized as one of 25 best tax lawyer blogs internationally by Feedspot. We are proud to be named the top Canadian tax law blog and thank all our readers for helping us to reach this milestone.
Frequently Asked Questions
I am a self-employed Onlyfans performer who earned $80,000 last year and $27,000 the year before. I’ve never registered for GST/HST. What are my obligations?
In addition to having to declare your earnings for income tax purposes, once you earned more than $30,000 in a year you are large to register for GST/HST and to collect and remit those taxes. The Onlyfans digital platform also has its own GST/HST obligation. You should consult with a professional Canadian tax lawyer to file a voluntary disclosure program (VDP) application in respect of your last year when you earned $80,000 and should have been registered. The VDP application can also cover any unfiled income tax returns or any undeclared earnings.
I’ve been working as an exotic dancer and registered for GST/HST last year. How do I collect GST/HST from the clubs where I work and how do I make GST/HST remittances to CRA?
You will have to present invoices to the clubs where you perform and those invoices will need to indicate your GST number and the amount of the GST/HST that you are charging. You will be able to deduct the GST/HST that you paid for business-related expenses such as costumes and makeup and will remit the net amount to CRA. This can be done online. Remember to keep copies of receipts for all of your business-related expenses. Those expenses will also be deductible in calculating your income tax liability.
The information presented in this article is of a general nature and may not be up-to-date as it reflects only the information available at the time of posting. It is not regularly updated and therefore may not reflect current information. This article is not intended to provide legal advice and should not be relied upon as such. It is important to note that tax situations vary depending on individual circumstances and may differ from those described in this article. If you have specific legal questions, it is recommended that you should speak with a Canadian tax lawyer.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. 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 the articles. If you have specific legal questions you should consult a lawyer."