CRA looks at e-commerce to top up its tax revenues

In the past year, Canada’s accumulated debt has ballooned to more than $1 trillion dollars.

Finding ways to reduce that financial burden, which in effect represents deferred taxes, is not easy.

In December, the Canada Revenue Agency signaled it was going after social media influencers and online video game streamers to see if their filed income reports fully reflected their actual earnings and tax obligations. Oddly enough, they are looking to social media such as Facebook and Twitter pages as potential sources of information.

This may be an admission that they seriously think there has been significant leakage of tax revenue from this sector of the economy. Google, Twitter, Netflix and Airbnb, among others, are believed to be under-contributing their tax weight compared to what they take out of the Canadian economy. Obviously, the big boys are the low-hanging fruit but the government’s effort is targeted at identifying and tracking any such business with more than $500,000 in annual earnings.

The initial objective is to convince these companies to enter the federal sales tax system, then collect and remit these taxes as other corporations do. They estimate this could produce a revenue stream of more than $1.2 billion over five years. The government is also considering a new tax on digital services, if necessary.

To add additional punch to these actions, CRA is ready to plow in $606 million over five years — or half the anticipated revenue stream — back into tracking and pursuing international tax evasion and aggressive tax avoidance schemes. That’s a lot of money that will effectively boost CRA’s investigation and auditing powers.

Although the $500,000 threshold might suggest that all e-commerce enterprises are not on the radar, those increased audit resources can be applied anywhere in the e-commerce universe.

Internet businesses are equally subject to the same tax laws that any other Canadian business must honour. It includes any enterprise involved in generating revenue for products and services using, but not exclusively, telephone, computer, fax, credit or debit cards and television shopping.

That includes any websites and web pages that incorporate order forms and a shopping cart and sell goods and services including where sold electronically on market place websites.

Foreign websites and pages that generate revenue also create a reporting obligation for you.

Your e-commerce income does not have to be reported by individual web page or website but rather as a percentage of your total gross income. There are differences in how you report the income depending on whether you are a corporation, partnership or self-employed.

Probably the most important rule to follow, like anything else involving taxes, is to have an ironclad computer-based tracking and reporting system that can follow, integrate and display all transactions in an easy to understand manner by both you and CRA. This is particularly true if your e-commerce business crosses multiple borders, where it deals with many currencies in multiple tax jurisdictions.

Grant Diamond is a tax analyst in Saskatoon, SK., with FBC, a company that specializes in farm tax. Contact: fbc@fbc.ca or 800-265-1002.

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