Why the side hustle is a threat to professional accountants
New survey reveals popularity of freelance tax, financial services
TORONTO, October 7, 2019 – Preparing tax returns and providing financial advice is the second most popular “side hustle” of working Canadians, according to a new report from custom marketing company Vistaprint. That news is problematic for the many professional accountants across Canada working in professional practice (rather than public accounting), whether in small firms or as sole practitioners, whose bread and butter business is tax preparation.
The term “side hustle” was named recently in the “Words We’re Watching” blog of dictionary publisher Merriam-Webster. While the dictionary defines it as “work performed for income supplementary to one’s primary job,” it might more simply be called “a way of making extra money in your spare time.” While the etymology of the phrase can be traced to the 1920s (and has a dual meaning of a fraud or scam), it has risen in usage among millennials and the advent of the gig economy. According to a survey by Bankrate.com, 48 per cent of millennial workers in the U.S. say they earn extra income on the side, working digital-based companies such as Uber, Lyft, Rover, and Datenight, as well as traditional bricks and mortar companies.
According to the Vistaprint survey, the most popular side-hustle sector among Canadians is information technology (10.2%), with professionals offering services such as web development and computer repair. This is followed by finance (8.68%), including financial advisors and accounting services such as tax preparation. The study of almost 2,000 Canadians in full-time work found over one fifth (22%) of respondents have already turned a hobby into a side hustle and a further 60 per cent would like to in the future.
“Canada’s side business economy is booming, as employees increasingly look for financial, professional and personal fulfilment that may not be present in their main job,” says Simon Braier, customer strategy and insights director at Vistaprint. “While many side hustles are born out of a personal interest or hobby, they don’t have to stay small. Side business owners can test their venture’s long-term viability, growth and marketing opportunities in a safer setting, helping them to ease the transition into full-time entrepreneurship and spend more time doing what they love.”
The problem for the accounting profession is that the preparation of T1 tax returns is a core revenue stream for practitioners. According to a 2019 survey of sole practitioners and small accounting firms, almost half of all Canadian sole practitioners prepared between 100 and 500 personal income tax returns in 2018. Six out of 10 small accounting firms prepared more than 500 personal returns in 2018. With fewer than 15 per cent of sole practitioners providing advisory and consulting services, the preparation of tax returns, both personal and corporate, is the bread and butter for public practitioners across Canada.
Chartered professional accountants who may wish to offer these services as their own “side hustle” are typically required to register with their provincial accounting body. In Ontario, for example, if you are providing accounting services to the public or engaged in the practice of public accounting as defined by CPA Ontario's by-laws, you must register your professional accounting practice with CPA Ontario. Providing accounting services to the public, or practising public accounting, can be done on a full-time, part-time, subcontract or consulting basis.
According to a 2018 Practice Advisory from CPA Ontario, even the mechanical processing of tax returns may constitute the providing of accounting services to the public, and may require registration, inspection, insurance, etc. A CPA Alberta registrant can offer simple, straight forward personal tax returns to the public for a fee without being registered: “It is expected that these returns would only include T4s and/or a few T5s. Please note that with T1s (where the accountant prepares more work like financial information or financial statements), CPA Alberta registrants are required to do so through a registered PAF.”
The popularity of side hustles
According to the Vistaprint survey, increasing disposable income is the top reason to start a side hustle, according to 50 per cent of Canadian side-business owners. Doing something enjoyable (40 per cent) and being productive in their spare time (32 per cent) also scored highly. The survey found that the average side-business owner is topping up their income by $15,430 after tax each year.
But the Reddit thread, “The CPA side hustle - what do you guys do?,” reveals that active income-generating side hustles are not popular with professional accountants. Many CPAs are more interested in so-called passive income generation such as rental properties, investments and the like. And many CPAs point out that they became professional accountants to earn enough in salary to pursue their hobbies and interests in the spare time.
This is borne out by the lower salary figure quoted in the survey: “Over one-third of participants (38 per cent) want to grow their side business, yet recognize that they would need to be bringing in over $5,000 per month to consider turning it into their full-time job. This figure is well above the $1,285.85 that average side business owners are currently taking home each month.”
Should you decide to pursue a side hustle anyway, successful side hustlers’ recommend that your side business should be something that you truly enjoy. This is followed by setting long-term goals, focusing on tasks that generate revenue, building a strong social media presence, and networking with side business owners.