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.
According to the schedule, income from webpages or websites includes:
Corporations (Schedule 88) and unincorporated businesses (T2125) must report the following information on:
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
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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
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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.
ReplyDeleteDo 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.
Hi Michael:
DeleteTechnically 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.
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?
ReplyDeleteHi Abcd
DeleteThe 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.
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.
Delete"The sale of goods and/or services through an auction, marketplace or website operated by others"
ReplyDeleteDoes 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.
Hi David:
DeleteAssuming 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.
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.
ReplyDeleteHi Potato:
DeleteAs 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).
Thanks, I had no idea that anything had changed with the reasonable expectation of profit approach.
DeleteBlogger 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?
ReplyDeleteHI CI
DeleteI 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
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.
ReplyDeleteI agree it's not too onerous, at least not for my websites.
Hi Bet
DeleteI 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.
I was advised by CRA to use business code 713990 for a personal finance blog that is not a corporation.
ReplyDeleteJust 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
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 :)
DeleteThanks 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...
ReplyDeleteHi Helene, glad it was of use.
DeleteGreetings
ReplyDeleteNow 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?
Hi Anon
DeleteI 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.
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!
Deletedomains 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?
DeleteHi there,
ReplyDeleteI found your blog searching for an answer about how to deduct expenses for online businesses.
Last year I gave affiliate marketing a shot for a couple of months and didn't have much luck. I was paid close to $9k by a Canadian company, but I had to spend around $7.5k in Google Adwords campaigns to make that money.
I'm using TurboTax and on the Advertising Expenses field it tells me that I can only deduct expenses for Canadian newspaper, television and radio advertising. How and where can I deduct expenses with online advertising?
Thanks very much for your assistance.
Cheers.
Hi Anon
DeleteTechnically turbo tax is correct, practically is your call
Thanks, Mark. What do you recommend people in the same situation to do? There are a lot of people out there who have online businesses and they spend a lot in Facebook Ads, Instagram Ads, Google Adwords and other advertising platforms based in the US. Will CRA understand that? Judging by T2125, they don't seem to be aware of all the different internet business categories.
DeleteHi Anon, sorry I do not provide specific filing advice, I cant answer this question.
Delete