Corporations and self-employed individuals are now required to disclose any internet business to the CRA. This disclosure requirement was first introduced for the 2013 tax year however, the CRA revised the filing deadlines after the initial release of the form. For corporations, you are now required to include Schedule 88 with your corporate tax return where the filing due date is after December 31, 2014. This means for taxation years ending July 1, 2014 and later. For self-employed individuals, if you filed your 2013 tax return before April 4, 2014, you are required to disclose this information on your 2014 and later tax returns. For those self-employed individuals that have not filed a 2013 tax return yet, you will be required to include internet business activities on your 2013 and later tax returns.
Corporations are required to file Schedule 88 with the T2 corporate income tax return if they earn income from one or more webpages or websites. The new form and revised T2 were available on the CRA website in January 2014, but were not included in tax return preparation software and therefore the CRA confirmed that corporations that filed their 2013 corporate T2 electronically did not have to file Schedule 88.
As self-employed individuals, you are also required to report internet business activities if you earn income from one or more websites. However, there is not a separate schedule that needs to be completed; this disclosure will be included as a section of the business statement, such as T2125 Statement of Business or Professional Activities, you are completing which is included with your T1 personal tax return.
Currently, partnerships do not have to report information regarding income earned from webpages or websites.
If you have more than five webpages or websites, you only need to disclose the five top income generators. The following are examples of the websites that you should include in your reporting:
- Webpages and websites that allow the completing and submitting of an order form, the checking out a shopping cart or similar transactions
- Online market place websites where your goods and/or services are sold
- Webpages and websites hosted outside of Canada that generate income.
Generally, if your webpage or website does not directly generate income, you do not need report it. The following are examples of webpages or websites that you should not include in your reporting:
- Telephone directory websites that list your webpage or website.
- Information only webpages and websites. For example: 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.
As a corporation or self-employed individual, you are required report the gross income received from all of your Internet business activities as a percentage of your total gross income. However, the CRA has indicated that if you cannot determine the exact percentage, it would be acceptable to provide a reasonable estimate of this income.
There will be confusion initially as the disclosure program requires further clarification, and has to date resulted in some frustration. For example, Schedule 88 requires disclosure if “your site doesn’t support transactions but your customers call, complete and submit a form, or email you to make a purchase, order, booking and others;”
Our question would be something to the effect of, whose business website does not encourage potential clients to contact them to do business?
Questions further can surround the phrasing on the Schedule 88 of “Also file this schedule if you don’t have a website but you have created a profile or other page describing your business on blogs, auction, market place, or any other portal or directing websites from which you can earn income.”
All told, there will be more kinks to work out, but please don’t shoot the messenger.
