My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Wednesday, March 19, 2014

Reporting of Internet Business Activities for 2013

The Canada Revenue Agency ("CRA") has been very concerned over the last few years about income tax “slippage” due to Internet commerce. This is a very complicated issue that deals with the location of servers and offshore tax planning.

The CRA has now set it sights on a much easier target, that being income earned from a website or webpage. As of January 1, 2013, the CRA now requires corporations to file Schedule 88, a one-page “Internet Business Activities” as part of their T2 return if the corporation earns income from one or more webpages or websites.

There is a similar requirement for unincorporated businesses on the revised Form T2125 (see Internet Business Activities section) so my fellow bloggers who are sole proprietors or partners in a business are now also caught by this disclosure requirement.

Income from Webpages or Websites


According to the schedule, income from webpages or websites includes:

  • The sale of goods and/or services through a website that includes the processing of payment transactions online
  • The sale of goods and/or services through a website that requires customers to either call, complete or submit a form, send an email to make a purchase, place an order, booking and/or other transactions
  • The sale of goods and/or services through an auction, marketplace or website operated by others
  • Income earned from advertising, income programs or other traffic your site generates

 

Reporting Requirements


Corporations (Schedule 88) and unincorporated businesses (T2125) must report the following information on:

  • Number of Internet webpages or websites your corporation earns income from
  • Provide the Internet webpage or website addresses (URL)
  • The percentage of gross revenue generated from the Internet in comparison to the total gross revenue
The CRA has not clarified to my knowledge if they require the form if the corporation has already filed their 2013 return.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

22 comments:

  1. Wow! I just had a look at the T2125. There is no way that I will fill out all that nonsense for the pittance I make from my blog. The only income I get is from advertising, and the amount is roughly enough to cover a frugal golf trip each April.

    Do you think there is any way I can avoid this onerous reporting requirement?

    If not, I'll be taking down all my advertising. After that I'll have to decide whether I want to continue blogging.

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    1. Hi Michael:

      Technically you must complete the form. It is a pain in the butt, but I don't think you need to stop taking advertising or stop your blog.

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  2. I looked at the cases they require internet activity disclosure and was wondering what about direct navigation, domaining businesses? This is where you have a URL like say business.com but run no website and automatically redirect the domain to say an affiliate program. There is no site and there is no page. Do you still have to report the domain name?

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    1. Hi Abcd

      The CRA has provided limited direction or admin guidance to date so I cannot answer that question definitively. The CRA typically traces activity for other areas, so I would assume they will eventually include such domains if they are not caught now.

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    2. Thanks. There is also limited guidance on something like running a Google Adwords Ad campaign and using a URL that links directly to an affiliate program. Here you have no website, no domain, and somebody else's tracking URL code. I am not sure what sort of info they are trying to gleen from listing 5 URL addresses, it tells you very little in some cases like these.

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  3. "The sale of goods and/or services through an auction, marketplace or website operated by others"

    Does that mean every sales on Ebay will have to be reported? Even though it's just a way for some to get rid of useless junks and pre-owned item. CRA isn't making it easy for us regular people.

    ReplyDelete
    Replies
    1. Hi David:

      Assuming you are selling these items as personal items and are not running a business, you do not have to report for informational purposes the EBAY sales, unless u file form T2125 because this is business income (in which case it is not each sale but the percentage of total sales you note on the form).

      However, for actual income tax reporting purposes (not informational reporting) all sales must be reported, however if they are personal sales, they may be at least partially exempt under the listed and personal use rules--see this blog I wrote on the topic:

      http://www.thebluntbeancounter.com/2011/03/personal-use-property-taxable-even-if.html

      If these sales are business related they must all be reported as part of your sales for income tax purposes.

      I am sure I probably told u more than u wanted to know.

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  4. Hi Mark, if there is no expectation of profit (i.e. online activities are a money-losing hobby that just has some offsetting revenue), does the revenue still need to be reported? For other businesses my understanding is no, and I don't plan to report if I don't expect to make money... but like Michael James if I have to go through all the reporting just to claim a miniscule loss I may just ditch the ads.

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    1. Hi Potato:

      As you may or may not know, the "old school" expectation of profit doctrine has been dropped by the CRA as they lost several cases. Essentially if an activity is commercial in nature and does not have a personal element, there is no REOP test.

      However, as in your situation, where you have a blog or online activities that are more a "hobby" than business, the CRA can still apply the reasonable expectation of profit guideline.

      Now back to your question. I would suggest that the CRA would expect you to report your income and you would probably want to limit your expense claim to that income (subject to facts and what your accountant thoughts are). So I would suggest that technically you are still required to (a) report the income and related, albeit maybe reduced expenses and (b) complete the internet activities information, however, I think you are probably overstating the required effort to do so and if I was you, I would not cancel my ads (although I don’t take ads, so what do I know).

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    2. Thanks, I had no idea that anything had changed with the reasonable expectation of profit approach.

      Delete
  5. Blogger question ... Is industry code 519130 the right one for a blogger to use? Does it matter much which one is chosen? I can't see any difference in tax calculation for different codes but does CRA use it, for example, to identify people they want to target?

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    1. HI CI

      I would suggest that is an appropriate code (for corporate tax code). Has no affect on tax calculations. Yes, it may be used for audit purposes, however know one knows for sure

      Delete
  6. This is why I like to do my taxes on paper. When I opened the Business Income guide and forms booklet, this new stuff was listed on the first page. I'm not sure how well this stuff gets flagged in electronic tax software programs.

    I agree it's not too onerous, at least not for my websites.

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    1. Hi Bet

      I agree, I don't think it is that onerous; more like a pain in the butt. Paper eh, hmmmm, I think the last paper return i did was 20 years ago.

      Delete
  7. I was advised by CRA to use business code 713990 for a personal finance blog that is not a corporation.

    Just finished my taxes and submitted the files, including T2125. Been doing it myself for a few years, hopefully getting better and making less mistakes that before :)

    I'm not making much from the site, maybe a few $K per year but it's certainly enough to report. Need to be honest!

    T2125 could be simplified but where's the challenge in that?

    All the best Mark, I'm sure it's going to be a very busy season for you!

    Mark

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    1. Thx Mark, I am sure you "like" the challenge of the T2125. Hopefully with your increase in readers, you will make more income, at least enough to join a fancy golf club :)

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  8. Thanks for posting this. I am a small sole proprietorship with all income streams coming from one food blog. Last year I was audited. The CRA rep who handled my case was in new territory for sure. Thankfully, my bookkeeper and I were able to navigate the audit expeditiously. Preparation is key and I'm passing on your post to others who might benefit from a heads-up and a bit of preparation...

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  9. Greetings
    Now that the courts have determined that domain names are personal property in Ontario, does that mean that proceeds from the sale of my domain names (I am just starting as a domainer) will be considered capital gains? Or will the income be considered regular income?

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    1. Hi Anon

      I have not looked at the matter. However, I would expect the issue to be like any income vs capital gain issue, is the sale an adventure in the nature of trade or capital. Thus, you would have to consider the number of domain names you buy and sell amongst other factors.

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    2. Thank you. I guess I'll be aiming for the adventure in the nature of trade, as I do want to be successful in my domain sales. Can't escape the taxman!

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    3. domains were always considered capital property - look at eligible capital property and rules for amortization expense. PS. is income from domain names active business income or passive investment income, how about for real estate?

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