Tax Issues for Online Business in Canada
- Posted by Sanjeev Kamra
- On December 26, 2010
- 0 Comments
Many companies today have a presence online or they are conducting business completely online. While that’s great for increasing sales and profits, it does pose many tax issues.
Country of Tax for Online Business
The first tax issue for online business in Canada is: “In which country does my online business have to pay tax?”
That depends on where your internet business is incorporated. For example, if your online business is incorporated in the United States, then it would have to pay tax in the United States. (Certain states in the United States, such as Delaware and Nevada, do not impose any state taxes whatsoever.)
However, the Canadian tax authorities want their fair share of tax. So, if you are living in Canada and are conducting your online (internet) business primarily from Canada, then the Canada Revenue Agency will impose tax on the profits from your online business even if it is incorporated outside Canada. The reason being is that the Canada Revenue Agency will argue that the mind and management of your online business is located in Canada and therefore should be subject to Canadian income tax. Therefore, you must be careful when selecting the jurisdiction of incorporation for your online business in Canada.
It is very important to consult an Accountant before incorporating your online business in Canada. For more info call 905-216-2445 click info@vnaccountingsolutions.com or visit https://www.vnaccountingsolutions.com/demo/.
HST (Harmonized Sales Tax) –for Online Business in Canada
The second major tax issue that online businesses in Canada need to address is the harmonized sales tax (HST). HST is applicable at a rate of 13% on product sales and services sold by online businesses to Canadians. Most provinces in Canada impose harmonized sales tax.
It’s very important for online business owners to track Canadian sales and non-Canadian sales. More specifically, your sales tracking system must be able to identify the country of residence of the customers that purchased your products and services, in order to ensure that HST is properly charged on Canadian sales.
If online business owners in Canada do not have such a tracking system, then the Canada Revenue Agency will impose HST on all sales made.
Harmonized sales tax on online businesses in Canada is a very important tax matter. For more info call 905-216-2445 click info@vnaccountingsolutions.com or visit https://www.vnaccountingsolutions.com/demo/.
Intellectual Property and Tax for Online Business Canada
The third major issue for tax on online businesses in Canada is intellectual property.
The most valuable asset for an online business in Canada is its intellectual property (IP), including a website or software. It’s an excellent idea to have your IP held by one corporation, and to have your other business assets held by a different corporation.
If you own more than one IP, you could consider creating a separate corporation for each IP owned. This will enable you to sell a particular IP without having to sell your entire business.
Furthermore, what’s great about the Canadian tax system is that capital gains of up to $750,000 on the sale of Canadian private company shares are not subject to income tax. So when you are selling the shares of a corporation that owns a particular IP, you will not have to pay income tax on the first $750,000 of profit on the sale.
You should consult with an accountant when developing the tax structure for your online business in Canada. For more info call 905-216-2445 click info@vnaccountingsolutions.com or visit https://www.vnaccountingsolutions.com/demo/.
Scientific Research and Experimental Developmental Tax Credits – Tax for Online Business in Canada
The fourth issue for tax for online businesses in Canada is Scientific Research and Experimental Developmental Tax Credits, also known as SR&ED.
For online businesses in Canada that are developing software or IP, the Canada Revenue Agency offers a government grant of up to 60% of the money spent on salaries, subcontractors, equipment and related expenses incurred. For more info call 905-216-2445 click info@vnaccountingsolutions.com or visit https://www.vnaccountingsolutions.com/demo/.
CRA Targeting Online Businesses
The fifth major issue for tax for online businesses in Canada deals with the Canada Revenue Agency’s recent administrative position
It appears that the CRA is aggressively auditing online businesses, especially those conducting business on eBay, for unreported income. For more info call 905-216-2445 click info@vnaccountingsolutions.com or visit https://www.vnaccountingsolutions.com/demo/.
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