Internet Sales: Is Your Business Caught in the Web

Internet Sales: Is Your Business Caught in the Web? – An Accountant’s Viewpoint

 

In May 2014, Canada Revenue Agency (CRA) made changes to income tax reporting requirements for corporations in respect of income earned from webpages or websites. You may not be aware that for taxation years with a filing deadline after December 31, 2014, a corporation earning income from one or more websites or webpages must now file a new Schedule 88, Internet Business Activities, as part of their T2 corporate income tax return, in order to identify this type of income.

 

According to the CRA, a corporation may earn income from their website or webpage if:

  • They are able to process payment transactions on their website (either directly, or through a third party) in order to sell goods and/or services online;
  • Their website allows a customer to either submit a form or send an email for the purpose of making a purchase, order, booking or other similar transaction;
  • They sell goods or services on auction, marketplace or similar websites operated by others; or
  • They earn income from advertising, income programs or traffic generated by the site. This would include income earned through affiliate programs, static advertisements placed on their site by other businesses, and other types of advertising and traffic programs.

 

Specifically, corporations are to report the number of their websites that generate this income, as well as provide the URL addresses of the business’s top five income producing sites. In addition, taxpayers are to disclose what percentage of their business’s total gross revenue was generated from the internet. If you are unable to determine the exact percentage, then you are required to provide a reasonable estimate.

Some examples of the webpages or websites you should include are:

  • Online marketplace websites where goods or services are sold;
  • Webpages and websites hosted outside of Canada that generate income; and
  • Webpages and websites that allow completion and submission of an order form, checking out of a shopping cart or similar transactions.

 

Generally, any webpage or website that does not directly generate income is not reported

Generally, any webpage or website that does not directly generate income is not reported. Some examples of the webpages or websites you should not include are:

  • Information-only webpages and websites. For example, directories or ads, these pages and sites give basic information such as a business name, address, telephone number and general information about goods and/or services provided.
  • Telephone directory websites that list your webpage or website.

 

Many incorporated businesses that sell the goods on their own websites, or websites such as Amazon, Facebook pages, or eBay for example will be required to complete Schedule 88. Even if your business does not have its own website, it is important to note your business may still be required to comply with these new disclosure requirements if it earned income as a result of posting a profile of (or a description of) your business on a blog, auction, marketplace, or any other portal or directory website.

Currently, businesses that operate as partnerships are not required to report internet income information.  Individuals that operate as a sole proprietorship, however, are required to comply with the new Internet Business Activities reporting requirements. There are specific sections on the business schedule of the Personal Tax Return designed to capture this information.

With the ever-increasing growth of online sales, this new reporting requirement will have a big impact on businesses throughout Canada. The CRA’s online sales reporting requirements may change how your business currently records and report sales revenue. We recommend consulting with your local professional advisor or accountant to determine how to best structure your accounting system to ensure accurate reporting at year-end.

 

 

Contributed by: Leanne McDougall, CPA, CA

Senior Manager, BDO Canada LLP

BDO Penticton  250-492-6020

 

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