software development sales tax
Tax for Online Business Canada – Accountant Mississauga Oakville Toronto
Tax for Online Business Canada – Accountant Mississauga, Oakville, Toronto
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.
This article discusses current issues related to tax for online businesses in Canada.
Country of Tax for Online Business Canada – Accountant Mississauga Oakville Toronto
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.
I recommend consulting with an Accountant in Mississauga before incorporating your online business in Canada.
Harmonized Sales Tax – Tax for Online Business Canada – Accountant Mississauga Oakville Toronto
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 an important tax matter that should be addressed with an Accountant in Mississauga, Oakville or Toronto.
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 in Mississauga, Oakville or Toronto when developing the tax structure for your online business in Canada.
Scientific Research and Experimental Developmental Tax Credits – Tax for Online Business Canada – Accountant Mississauga Oakville Toronto
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.
To ensure that your SR&ED claim is processed correctly and quickly, you should engage the services of an Accountant in Mississauga, Oakville or Toronto that specializes in tax for online businesses.
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.
Therefore, as an online business owner in Canada, it’s important to hire an accountant to ensure your tax returns are correct and up-to-date, and your books and records are properly organized.
About the Author
Allan Madan is a Chartered Accountant and a Tax Expert in the Toronto, Mississauga and Oakville regions of Ontario, Canada.
Allan had many clients that are online business in Canada, and he helps them with their tax and accounting needs.
Get access to Allan’s free report, 20 Free Tax Secrets on How to Beat the Tax Man, by visiting
http://www.siteproweb.com/20-free-tax-secrets-from-allan-madan
To learn more about Allan Madan, see
http://madanca.com
or watch this video at
http://madanca.com/tax-for-online-business-canada-by-accountant-mississauga-oakville-toronto.
Also, call to speak with Allan Madan at 905-268-0150.
As a sole trader can I offset the income on sale 2nd property with expenses on development of an IT Product?
Will all sole trader income ie from my property rental income and my my IT service income be treated as one income and expenses.
I am liable for income tax on the sale of my house and I need to know if I can offset this profit on the development of new software product for my second IT business.
Even better can you point to the evidence to support your answer!
The sale of your second property will be subject to capital gains tax, not income tax, so you won’t be able to offset it with your earnings from your IT business.
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