DAVID WILKENFELD, CPA, CA, canadian tax CONSULTANT

Posts Tagged ‘Schedule 88’

Internet Business Beware

In Canadian Income Tax on February 17, 2014 at 9:32 am

If you make use of the internet to earn income, the CRA would like to know about it.

Changes to the Form T2125 (statement of self-employment earnings for individuals), and a new Schedule 88 for corporations will now require any business with an internet connection (double meaning intended) to provide information to the CRA.  Schedule 88 is not yet provided in most corporate tax preparation software, but it can be found on the CRA’s website.

The CRA is asking for the URL of up to five web sites through which you carry on any business. In this regard carrying on business through a web site includes pretty much any connection your business has to the internet. It includes:

  • the sale of goods or services directly from your web page (with payments made online through a shopping cart)
  • the sale of goods or services through orders taken by email or forms on the web page, even if payment and delivery are made offline
  • the sale of goods or services through an auction, marketplace or similar website, including Ebay, Kijiji or Craigslist
  • earning advertising revenues online, for example, through static ads placed on the company’s website, or through advertising traffic programs such as Google AdSense or Microsoft AdCentre

Even if you do not have your own website you must file the form if you have a profile or other page describing your business on blogs, auction, marketplace or any other portal or directory website from which it earns income. For example, if your business can be found through a listing in the online Yellow Pages, this must be reported as a web site through which you carrying on business.

The CRA official I spoke with regarding this new requirement stated that this is essentially a research project designed to gather information on internet business. The non-reporting of revenue from online sales is an ongoing concern to the CRA and these new requirements are the start of a project designed to “level the playing field” between traditional business and internet sales.

The reporting requirements are for 2013 and future years. For corporations who have early 2013 year-ends and may have already filed their tax returns, the CRA official stated the form will not be requested.

Interestingly, there is no specific legislation sanctioning the requirement to file these forms as there is, for example, for the reporting of income from foreign sources. However, the CRA does have the legal authority to demand any information from taxpayers that would have any bearing on their tax liability. Furthermore, non-compliance could result in penalties for failure to file information returns, which could add up to as much as $2,500.

These requirements are so new, and have been introduced with so little publicity (Schedule 88 is not even available in French as of this date), it will be interesting to see, at least in the short run, what the level of compliance will be. But be warned. If you are generating any type of business revenue through the internet, the CRA will be trying to track you down.