Amazon Sellers’ Guide to Canadian Taxes: Part 1
In this blog series we will discuss Canadian Amazon sellers’ obligations with Canada Revenue Agency (CRA).
CRA is the governing body that administers the Government of Canada’s tax law, in addition to administering various social, economic, and incentive programs that are delivered through the tax system.
How Does CRA Classify Amazon Sellers?
Amazon sellers fall under CRA’s e-commerce banner. As the institution simply notes on its website: “Many businesses operate using the Internet. Doing business like this is also called e-commerce.” Amazon is known for selling physical goods, but e-commerce includes digital products too, such as e-books.
Does CRA Distinguish Between A Brick and Mortar and an E-Commerce Business?
CRA views your Amazon business an income generator, and therefore you, the owner, are subject to reporting and taxation. However, there are differences in the reporting requirements when it comes to e-commerce. One of the main differences is website reporting.
You must report websites that generate income. Not only must your report list private sites where you engage e-commerce via mediums like Shopify, you must also report your sites hosted by large e-commerce platforms, like Amazon. Any site used to earn income where an order form, checkout process, shopping cart, method of payment, etc. is present, must be reported regardless of if that site is hosted in or outside of Canada.
If you have more than five sites or Amazon stores, you can just report the top five income generating sites as reported websites, but you must still report the income gained from all of your sites.
CRA has different requirements and forms for corporations, individuals, and partnerships for reporting e-commerce websites.
E-commerce stores still have overhead. Amazon sellers rely very heavily on their computer and most sellers have a home office as well.
If a room of your home is your principal place of business and/or the space is used to earn business income on a regular basis, you can deduct a certain part of your expenses such as heat, home insurance, electricity, property taxes, mortgage interest and even cleaning supplies. Also be sure to account for depreciating assets like your computer.
Did you know that Amazon sellers can deduct software and website development as a capital cost if it is, according to CRA:
- current and deductible in the year they are incurred
- capital and deductible under the rules in the Act for capital cost allowance
Make sure your accountant knows if you use A2X software or if you created any websites, like a blog page or page of tutorials, to support your Amazon store.
Use an Accountant to Prepare Your Taxes
Self-employed individuals are more likely to be audited, but that risk drops significantly if your taxes are prepared and filed by an accountant. The use of an accountant signals to CRA that you are invested in proper, accurate and timely reporting. Additionally, your accountant knows the ins and outs of e-commerce and what CRA requires from you. Accountants like us, that focus on small businesses, can also suggest software for Amazon sellers and other tools to help your e-commerce career thrive.
In the coming weeks we’ll have even more information for Amazon sellers. Stay tuned to our blog.