All Canadian businesses must report and pay tax on any income arising from their business activities, whether those activities are carried out from a traditional bricks and mortar office or storefront, or through one or more websites. The Canada Revenue Agency (CRA) has become increasingly concerned, in recent years, about income generated through e-commerce on the Internet, and particularly about the possibility that such income may go unreported and therefore untaxed.
The CRA’s efforts in this area have been stepped up a notch this year. For the first time, most Canadian businesses, incorporated or unincorporated, will be required to provide specific information on the extent of their internet business activities, and the percentage of their income which is derived from such activities, when filing their annual tax return.
Most businesses do, of course, have a website, but not all business websites exist for the purpose of generating income—some are created and maintained only to provide information about the business and the goods or services it provides, together with contact information. The CRA’s new reporting requirement distinguishes between those two kinds of websites, and only those which are income-generating need be reported. For the CRA, examples of webpages or websites that are covered by the new reporting requirements include (but are not limited to):
- webpages and websites 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
- webpages and websites hosted outside of Canada that generate income.
Websites which do not generate income need not be reported include:
- telephone directory websites that list the webpage or website of a business; and
- information-only webpages and websites. (Like 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.)
The process by which the new reporting requirements must be fulfilled differs, depending on whether or not a business is incorporated. For those that are not—generally, self-employed individuals—the required information is reported in a new section of the existing form on which business income is reported and business deductions claimed (Form T2125 for most businesses).
Corporations will report the same information on a new schedule—Schedule 88, Internet Business Activities, as part of the corporation’s T2 income tax return, where the required filing date for that return is after December 31, 2014.
On either form, the business must indicate how many income-generating websites it has, must provide the URL of each of those websites, and must provide an estimate of what percentage of the business’s gross income was received from Internet business activities.
There is one kind of business which is, as yet, not subject to the new reporting requirements. The CRA indicates on its website, without explanation, that “[I]f your partnership earns income from one or more webpages or websites, currently you do not have to report Internet income information.”
Finally, some taxpayers may not have to deal with the new reporting requirements until next year. Since the new version of the T2125 was not made available online until around the beginning of April, the CRA website states that self-employed individuals who filed a 2013 return before April 4, 2014 can include their Internet income information with the 2014 return, to be filed in 2015. As well, information provided in a CRA newsletter indicates that if the tax preparation software used by a corporation for its 2013 return does not include new Schedule 88, the corporation can start filing that schedule with its T2 return for 2014.
