“As with all businesses, ecommerce business owners must complete the applicable T2125 business schedules within the T1 Personal tax return, or in the case of an incorporated business, the T2 Corporate return’s Schedule 88.”

“As with all businesses, ecommerce business owners must complete the applicable T2125 business schedules within the T1 Personal tax return, or in the case of an incorporated business, the T2 Corporate return’s Schedule 88.”

Delving into e-tailing, the use of electronic means to sell goods and services

Tax Tips & Pits by Ron Clarke

by RON CLARKE

Ecommerce, affectionally now referred to as “e-tailing,” is the selling of goods and services through electronic means, often interchangeably referred to as digital or website or on-line or internet or mobile selling.

In fact, it now includes automated banking machines and credit card selling.

Ecommerce in Canada accounted for an estimated 45 billion dollars in 2021, just up a bit from the $5 billion four years ago in 2017.

Over 85 per cent of Canadians admit to shopping on-line.

With this growth and numbers like these, several years ago Canada Revenue Agency (CRA) adapted its tax returns to require the specific valuation reporting of ecommerce revenue, and even requires the identification of the websites where this revenue is generated.

As with all businesses, ecommerce business owners must complete the applicable T2125 business schedules within the T1 Personal tax return, or in the case of an incorporated business, the T2 Corporate return’s Schedule 88.

When completing these tax schedules, up to five websites complete with their URL, must be listed.

And not just any five, the top five revenue producing websites.

These include websites not only owned and operated by the business that accept orders, but also includes third party marketplace websites like Amazon, Kijiji, or Facebook that “sell” the business’ services or products, and other such websites that drive buyers to the business’ website.

Websites hosted outside of Canada are not excluded from making this list either.

The only websites exempted from the possibility of being in the top five are telephone directories and information-only websites.

For tax return input, determine the revenue generated by each website and calculate the percentage of this sales revenue as a proportion of total revenue generated for the entire business which also includes revenue from non-website activities, if any.

The percentage is reported on the tax return for each of the top five websites.

When it comes to the expense of operating an on-line business, CRA has guidelines on how particular business expenses must be expensed.

Typically computer equipment, software and website development costs are not considered “current and deductible in the year they are incurred.”

Rather they are deemed “capital and deductible under the rules for capital cost allowance.”

In other words, these costs cannot be written off as a 100 per cent expense when purchased.

Instead, they are treated as an asset and grouped into a class of like-items, then depreciated at a specific percentage rate each year with that proportional dollar value claimed as an expense.

A word about GST and PST regarding ecommerce new business start-ups.

The GST small supplier exemption for businesses that have sales revenues under $30,000 is available.

Noteworthy to this small supplier exemption, because sales of products and services that are sold outside of Canada are not GST taxable, in the calculation of this $30,000 small supplier threshold, any foreign sales are excluded.

PST rules in B.C. include a $10,000 small supplier exemption on the sale of most goods, but not all.

Unlike GST, sales sold outside Canada do factor into this $10,000 PST small supplier threshold.

Bottom line, if you are operating a business selling through the internet, as unassuming as ecommerce may appear, all levels of government are taking great interest in your activity.

Ron Clarke, owner of JBS Business Services in Trail, provides accounting and tax services.

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