Are you a peer-to-peer (P2P) seller who uses online platforms like Etsy, eBay, Amazon, or Facebook Marketplace to sell goods?
If so, with tax season underway, it's important to understand the tax implications of P2P transactions and the steps you need to take to ensure you're reporting your income correctly.
But, first and foremost, it's crucial to understand what a P2P sale is. It's a direct sale of goods from one person to another, often facilitated by digital platforms like online marketplaces or mobile applications such as Etsy or Amazon.
Income tax implications
According to the Canada Revenue Agency (CRA), as a resident of Canada, you must report all your income from P2P or other transactions on your income tax return. This includes any income earned inside or outside of Canada. Additionally, if you've paid foreign income tax, you may be eligible for a tax credit.
P2P sellers who are not resident in Canada are subject to Canadian income tax on most Canadian-sourced income paid or credited to them during the year unless all or part of that income is exempt under a tax treaty. More information on non-residents is available at Non-Residents and Income Tax.
To ensure that you're reporting your income correctly, you should keep proper books and records. This includes:
- a list of all earnings from P2P sales
- details about when, how and where your sales were made
- details of the business expenses you incurred for these sales, supported by invoices, receipts, or vouchers
This applies to the sales you make to buyers in Canada and other countries. The CRA says that keeping records of all your purchases will ensure you can support the expenses you claim on your tax return.
GST/HST Implications
If your total taxable supplies are more than $30,000 over four calendar quarters, you may be required to register for, collect, and pay the goods and services tax/harmonized sales tax (GST/HST) for taxable supplies of goods and services that you make. It's important to note that this applies only if your online activities are not a personal endeavour.
How to correct your tax affairs
If you didn't report your income from P2P sales in previous years, you may have to pay penalties and interest in addition to the tax on the unreported income. To avoid or reduce penalties and interest, you can correct your tax affairs voluntarily.
To correct your tax affairs, you can:
- Ask for a change to your income tax and benefit return
- Adjust your GST/HST return
- Submit an application through the Voluntary Disclosures Program. If accepted by the CRA, you will receive prosecution relief, and in some cases penalty relief and partial interest relief that you would have otherwise needed to pay.
If you're a P2P seller, it's crucial to be aware of the tax implications of your sales. Keep proper records of your earnings and expenses, register for GST/HST if necessary, and correct your tax affairs voluntarily to avoid any penalties and interest. And, by following these tips, you can ensure that your P2P selling experience remains smooth and hassle-free during tax season.
