Income-Tax & GST Obligations Of Self-Employed Canadian Sex Workers ' A Canadian Tax Lawyer's Overview

• Published date: 02 July 2020
• Subject Matter: Tax, Income Tax, Sales Taxes: VAT, GST, Tax Authorities
• Law Firm: Rotfleisch & Samulovitch P.C.
• Author: Mr David Rotfleisch

Introduction - Working in the Sex Industry

A Canadian sex worker's worldwide income is taxable like that of every other Canadian resident. Like all income-earning Canadian residents, Canadian sex workers have income-tax obligations, and they may need to file a Canadian income-tax return.

In addition, if the sex worker is self-employed, GST obligations might arise. If so, the sex worker must register for a GST number and start charging GST (and any applicable provincial sales tax, like HST) on services provided or goods sold to clients.

This article outlines both the income-tax obligations and the GST obligations of self-employed sex workers in Canada. It ends by offering tax tips to Canadian sex workers.

Sex Work as a Source of Taxable Income

The term "sex worker" refers to anyone earning income in the sex industry. So, it covers a broad range of services, from phone-sex operators, erotic dancers, sex-toy makers, and strip-club managers to pornographic actors, webcam models, and prostitutes. It also covers activities ranging across the entire legality spectrum-from legal to legally grey to illegal.

If the sex worker operates an illegal or legally grey business, one might wonder whether that income is taxable. The answer is that Canada doesn't shy away from taxing income that someone earned by breaking the law. This might seem like a government's hypocritical attempt to share in unlawful gains. But this concern is trumped by the perverse incentives that would arise had Canada exempted unlawful income from tax.

Since Canada first introduced personal income tax, Canadian courts have affirmed that income earned from an illegal activity remains taxable. In No. 275 v. M.N.R., 55 DTC 439, a case involving the Income Tax War Act, which Canada introduced in 1917 to finance its efforts in the First World War, the court explained that illegality doesn't bear on whether income is taxable:

[W]hen the question in issue is whether profits arising from illegal sources are liable to taxation or not, the courts are not concerned, either with the source of the taxpayer's income, or by the means taken by him to earn it, but merely with the question as to whether or not the said income is liable to tax under the provisions of the taxing statute. Once the courts are satisfied that the income is liable to tax, it is immaterial that it comes from a legal or an illegal business, or a business which is malum in se or malum prohibitum.

In short, this means that a sex worker's business income is taxable-regardless of where the specific endeavour falls on the legality spectrum.

Of course, it also means that sex workers gain the benefit of claiming allowable expenses and available tax credits. In 65302 British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804, the Supreme Court of Canada...