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:
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:
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:
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