Many businesses operate using the Internet. Doing business like this is also called e-commerce. This page contains information on e-commerce and on reporting requirements for doing business on the Internet. There is also information on capital cost allowance for computer software and website development costs.
E-commerce is the delivery of information, products, services or payments by telephone, computer or other automated media. This definition includes the many kinds of business activities that are being conducted electronically. However, e-commerce is much more comprehensive than just purchasing goods and services electronically.
E-commerce can also include retail transactions that take place by:
- automated banking machine
- credit card
- debit card
- television shopping
- secure private computer networks through electronic data interchange
- the delivery of government services
- business that is handled over the Internet
Reporting Internet business activities
All existing tax laws that apply to businesses also apply to business conducted over the Internet. If you earn income from one or more web pages or websites, you may need to report the web addresses and the income they earn. Depending on your business structure, you have different reporting requirements.
Web pages and websites to report
Indicate your web pages or websites that generate income. If you have more than five web pages or websites, specify the top five income generators. If they do not generate income, such as telephone directory websites and information-only web pages, you do not need to report them. Examples of web pages or websites that you should include are:
- web pages and websites that allow the completing and submitting of an order form, the checking-out of a shopping cart or similar transactions
- online marketplace websites where your goods or services are sold
- web pages and websites hosted outside of Canada
- advertisements, programs or traffic to your site that generate income
Report the gross income received from all of your Internet business activities as a percentage of your total gross income. If you can't determine the exact percentage, give a reasonable estimate. See the headings below for how to report it depending on your business structure.
If your corporation earns income from one or more web pages or websites, you are required to file Schedule 88, Internet Business Activities, along with your corporation income tax return (T2) for tax years where your filing due date is after December 31, 2014.
If your partnership earns income from one or more web pages or websites, currently you don't have to report Internet income information separately.
If you earn income from one or more web pages or websites, fill in the Internet business activities section of the following forms that apply to you, along with your income tax package (T1):
Capital cost allowance – computer software and website development costs
In general, computer software or website development costs are either:
- current and deductible in the year they are incurred
- capital and deductible under the rules in the Income Tax Act for capital cost allowance
For more information on general principles for capital cost allowance, see Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.
If it is computer software that is a depreciable asset, include it Class 12. If it is system software, include it in Class 8, 10, 29 or 40.
"Computer software" includes system software and a right or a license to use computer software.
"Systems software" refers to the general operating system that enables running the application of programs, directs and coordinates the different operations of the computer. This includes all of the input and output between the keyboard, the computer screen, the printer, the disk drives and other peripheral equipment.
Generally, software is considered depreciable if it is of an enduring nature, which generally means that its useful life is anticipated to be beyond one year.
There are no specific provisions in the Act regarding the treatment of website development costs, but some of the principles in the Income Tax Folio S3-F4-C1 can apply to website development costs.
Whether a website development cost is current or capital is always a question of fact.
If a website development cost is a capital cost, it may be for the acquisition of "general-purpose electronic data processing equipment" and therefore included in Class 10(f), or it may be for the acquisition of computer software and therefore included in Class 12(o).
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