Beginning with the 2013 taxation year, a corporation, partnership or self-employed individual earning income from one or more Internet webpages or websites must comply with certain reporting requirements and must file certain forms along with their tax return.
Income generating webpages or websites must be disclosed, whether hosted inside or outside Canada. If the entity or individual has more than five webpages or websites, only the five top income generators must be disclosed. The types of webpages or websites to be disclosed include the following:
- Webpages or websites where the business’ goods and/or services are sold. For example, those that have a shopping cart, where payment transactions are processed by the business or through a third-party service;
- Webpages or websites that do not support transactions but that allow customers to call, complete, and submit a form, or email the business to make a purchase, order or booking;
- Webpages or websites operated by third parties that allow the business to sell goods and/or services on auction or marketplace;
- Webpages or websites that allow the business to earn income from advertising, income programs, or traffic generated by the site, including:
- static advertisements placed by the business on its site for other businesses
- affiliate programs
- advertising programs such as Google AdSense or Microsoft adCentre; and
- other types of traffic programs; or
- Blogs, auction, market place or any other portal or directory on which the corporation/partnership/individual has created a profile describing the business and from which it earns income.
Webpages and websites that provide contact information for a business and information-only webpages and websites need not be disclosed. In addition to disclosing the address of the webpage or website, the gross income received from all Internet business activities also has to be reported as a percentage of the business’ total gross income.
Corporations will report the income they earn from one or more webpages or websites on newly-released Schedule 88, “Internet Business Activities”, which must be filed along with their corporate income tax return (T2) beginning with the 2013 taxation year. Individuals will report their Internet business activities on the following forms, as applicable:
- Form T2125, Statement of Business or Professional Activities
- Form T2121, Statement of Fishing Activities
- Form T2042, Statement of Farming Activities
These new compliance measures are not surprising, given the challenges experienced by tax authorities around the world in tracking transactions that occur in an e-commerce environment, both from an income tax and consumption tax perspective. It is not clear how the CRA will use the information gathered as a result of the new compliance requirements, however, it will likely provide them with another means of monitoring businesses that earn a significant portion of their income from e-commerce transactions.
By Carole Chouinard
Carole Chouinard is a partner in Gowlings‘ Ottawa office, practising in the area of taxation law. Carole’s practice involves transactional work, as well as tax planning for corporations and individuals. She advises clients on the tax aspects of transactions, including share and asset sales of corporations and reorganizations of corporations, the structuring and formation of corporations, trusts, partnerships and tax-exempt entities and estate planning. Her clients include both domestic and foreign corporations, individuals resident in Canada and outside Canada, as well as tax-exempt entities. She has experience in structuring business ventures and transactions for both taxable and tax-exempt entities.
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