What are the tax implications of website sales and server locations?

0
269
Grant Gilmour
Grant Gilmour
Grant Gilmour

By Grant Gilmour
Facts:
Canada Revenue Agency has created a new tax return schedule to disclose internet sales. Schedule 88 is required for all corporate returns for years ended after July 1, 2014. On this schedule you are required to report the number of websites from which you earned income, the website addresses, and the percentage of your sales which were derived from these websites.

Discussion:
Website sales
If your company earns income from websites it may need to file a schedule 88 with your annual corporate tax return if:
• You sell goods and/or services on your own website or through other websites.
• Your website does not support transactions, but your customer completes an order form or booking through your website.
• You sell goods or services on auction or marketplace type websites.
• You earn income from advertisements placed on your site.
The ability to sell products or services over the internet has created wonderful opportunities for expansion and growth in many companies. However, there may be foreign tax implications on expanding your sales beyond Canadian borders. Sales taxes are often calculated based on the end user’s location for example, many US states require tax filings to disclose all sales within their borders.
Schedule 88 is likely only the beginning of the Canadian government trying to gather information in order to regulate and tax website sales. As the global marketplace becomes more easily accessible, governments are working to gather and share information to ensure each country can collect the applicable taxes.
Server location
The location of your server is also relevant for tax purposes. Many countries including the United States and Canada use the concept of permanent establishment. Once you have a permanent establishment in a country, province or state, you may be subject to that country, province and state’s tax rates. If your server is located in the United States for example, you run the risk of having all of your website sales be deemed as taxable in the US as your server location may be viewed as a permanent establishment. US corporate tax rates are typically higher than Canadian corporate tax rates, so you would likely want to avoid this situation by ensuring your server is in Canada.
Recommendation:
If you would like to talk about the tax implications of your website sales or server location, please contact Gilmour Knotts Chartered Accountants.

Grant Gilmour B.SC. MBA, CPA, CA is the International Tax Partner of Gilmour Knotts Chartered Accountant. To connect with Grant visit: www.gilmour.ca