How is an Internet Business Taxed in Canada?

Essentially, Internet businesses are taxed in the same way that all businesses are taxed. The Canada Revenue Agency, or CRA, does not base its system of taxation on the way in which a business chooses to go about its operations, or the medium through which it does its business. Instead, it is based on the form of business that is being operated. This applies not just to income taxes, but to sales taxes. Even on the Internet, Canadian businesses must charge local Provincial Sales Taxes (PST) and the Federal Goods and Services Tax (GST). An Internet shop that is run out of Montreal pays the same taxes as a physical shop in Montreal.

If your business is a sole proprietorship, you are required to fill out a Statement of Business Activities (Form T2125). This form can be found in the T1 Income Tax Form. If, on the other hand, you own a business which is incorporated, you must report your income through a T2 Income Tax Return. You may want to hire an accountant to help you with this. An accountant can help to make your job a lot easier, saving you time and possibly money in the process.

As with any other business, you will be able to claim business expenses. Business expenses are costs that you have incurred in order to keep your business going. You will want to be careful with what you choose to claim. If you don’t claim enough, you are paying more taxes than you need to. But if you are claiming too much, the CRA may end up choosing to audit you, which can make your life difficult. This is another reason to consider having an accountant help you with the process.

As with any business, Internet businesses in Canada are required to keep records that can be made available to the CRA upon request. The required records are the same as for any other business, must go back six years, and they need to be maintained in Canada. In addition, Internet businesses are required to keep electronic records in addition to physical paperwork.