To keep up with changes in technology, the Canada Revenue Agency (CRA) issued a new set of rules regarding the taxation of Internet business owners all the way back in 2014, which means that depending on the type of business you operate, there may be additional requirements when you file your tax return.
- If your business makes sales through online websites, the CRA wants to know a little more about your business.
- Sole proprietors and partnerships will report their income and expenses on their personal tax return using the proper statement of activities form.
- There is a separate area to list income generating websites and how much of your income they earn.
Identifying Your Business Type
Whether you own a snow removal company, a series of websites or any other type of business, it will typically fall into one of the following three categories; If you run a business yourself, you have a sole proprietorship. If you run a business with another person, you have a partnership and if you have a business which is incorporated then you have a separate legal entity (the corporation).
Partnerships can be governed by written or verbal agreements and when filing your taxes, you file as if you are a sole proprietor, however, instead of claiming all of the partnerships business income and expenses, you only claim a portion and your partner claims the other portion.
If your partnership has more than $5 million in assets or an absolute value of revenue plus expenses that exceeds $2 million, you must file a T5013 Partnership Information Return with the CRA.
If you have incorporated your company, you have a corporation and must file a T2 Corporation Income Tax Return, and the income or losses that you are claiming must be declared on your personal (T1) return.
As a sole proprietor, your income and losses are all included on your personal income tax return.
Filing Tax Returns for Internet Businesses
Regardless of which business structure you have, you will file your taxes by reporting the amount of income you received and deducting the expenses you incurred to make that income.
For example, if you are a sole proprietor who works out of your home, you report your income and then deduct expenses related to Internet service, office supplies, advertising and other qualifying home office costs.
Sole proprietors of Internet businesses must fill out the portion of Form T2125, Statement of Business and Professional Income that relates to your businesses, and if your online business is related to fishing or farming activities, you must fill out industry-specific forms (T2121 or T2042).
Ensure that you include these forms with your T1 tax return.
For partnerships, the appropriate statement of business activity is required, with each partner reporting their share of the net income, as well as deducting any expenses incurred on their own – on their own T1.
If your Internet business is a corporation, you must also file Schedule 88, Internet Business Activities with your T2 corporation tax return.
If you earn income from Web pages or websites, the CRA requires you to list them on your tax return. If you have more than five websites, you must list the top five websites which earn the highest income.
You are not required to report websites that do not earn money. For example, if you run a website where you sell shoes, you must report income from that site and list it on your tax return. However, if you also have a blog that does not generate money, you are not required to report or list that website.
Websites and Percentage of Gross Income
Finally, you must specify the percentage of your gross income that you earned from websites or Web pages on your return. For example, if you earned $25,000 from websites and your gross income is $100,000, you must note that 25% of your income is from an Internet business.
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