In recent years, the Canada Revenue Agency (CRA) has become increasingly concerned about income generated through e-commerce on the internet, and more specifically, about the possibility that such income may go unreported, and therefore, untaxed.
As such, most Canadian businesses, whether incorporated or unincorporated, are now required to provide specific information on the extent of their internet business activities.
This is done when filing the annual tax return for the business.
Incorporated businesses will report this information on the T2 Corporation Income Tax Return, Schedule 88, “Internet Business Activities”, for any years where the filing deadline is after December 31, 2014. Unincorporated businesses (generally self-employed individuals) will report this information on the T1 Personal Income Tax Return on one of the following forms: Form T2125, “Statement of Business or Professional Activities”; Form T2121, “Statement of Fishing Activities”; or Form T2042, “Statement of Farming Activities”. This is required for 2014 and later tax returns.
On the appropriate form, the business is required to indicate how many income-generating websites it has, provide the URL of each of its websites, and moreover, an estimate of what percentage of the business’s gross income was earned from conducting internet business activities.
According to the CRA, examples of websites or webpages that are covered by this reporting requirement include (but are not limited to):
-websites and webpages that allow the completing and submitting of an order form, the checking out of a virtual shopping cart, or similar transactions;
-online market place websites where the goods and/or services of the business are sold; and
-websites and webpages hosted outside of Canada that generate income
Generally, if your website or webpage does not directly generate income, you do not need to report it. Some examples of these types of websites or webpages are:
-telephone directory websites that list the URL of a business; and
-information only websites and webpages; for example, those providing only business name, address, telephone number, information about goods/services offered, etc.
If you have any questions about internet business activities and the related reporting requirements, please contact your local CPA or:
Megan Long, CPA, CGA
Megan Long, CPA, CGA of Omland Heal Chartered Accountants, provides accounting and tax advice to help people meet their financial objectives. Services include; financial statements, corporate taxes, personal taxes, business advising, corporate reorganizations and estate planning.