Tax basics for Canadian eBay Sellers and Business Owners

Working on eBay from home provides a fantastic lifestyle for those who choose to do so. If you have been in paid employment all your life, working as a sole proprietor means that the responsibility for paying taxes is up to you. It’s actually not that difficult once you get a hang of the basics: all sole proprietors need to do is file a personal income tax form at the end of the year.

See Statement of Business Activities

The Basics

To make sure you meet all your legal and tax requirements it is a very wise idea to:

Paying Tax

Sole proprietors pay tax simply by filling in a personal income tax form at the end of the year.

GST

You need to register for GST (goods and services tax) if your worldwide taxable revenues are more than $30,000.

Tax Deductions

Tax deductions are one of the big bonuses of working from home. You can deduct any reasonable business expense from your income, reducing the amount of tax you have to pay right down.

Important: You must have receipts or other vouchers to support your expenses or claims. If there is no evidence available, the tax department may reduce the expenses of claims you have made.

What You Can Claim:

Business Use of Home (Rent, utility bills etc)

You can deduct a proportion of your rent/mortgage repayments, utility bills and so on as long as you can prove your home is your principal place of business or you use the space only to earn your business income and you use it on a regular and ongoing basis.

To decide how much rent/mortgage you can deduct, you need to measure the number of square feet you use for business and divide that by the overall square feet or your home. This area needs to be dedicated solely to business use, so if possible, a spare bedroom or office is ideal but a portion of another room is still acceptable. This will give you a percentage of your home that you use for business and the percentage of rent/mortgage you can deduct as a business expense.

Other expenses you may deduct include part of your maintenance costs such as heating, home insurance, electricity, and cleaning materials. You can also deduct a part of your property taxes, mortgage interest, and capital cost allowance. It’s a good idea to consider getting a second phone line to make it easier to claim phone and internet bills for your business.

Business Start up Costs Deductions

Make sure you have the start date of your business recorded as you can only deduct business expenses incurred after the start-up date.

You can also deduct the lease you pay for computers, cell phones, fax machines and other equipment. But note that if you buy this equipment it is not a deductible expense.

More information on Business expenses

Record Keeping

Your business success is dependent on your records. You also have a legal obligation to keep records for a minimum of 6 years from the date of filing your return.

Many new businesses make the mistake of not bothering to keep accurate records and end up not knowing where they stand. They don’t know where money is being wasted, when their profits are higher, and when they are lower. This is a big mistake. You can’t hope to improve your business, to truly make it profitable if you don’t know what’s actually happening. And don’t forget that good records are also absolutely essential in case of an audit and will protect you from penalties and potential problems.

You must record:

Accounting Software

Some people still prefer the traditional system of a ledger book to keep their records. However, these days accounting software is easy to use and saves you a lot of time by duplicating records across spreadsheets. The two most popular software applications for small business accounting are Intuit's QuickBooks/Quicken and Microsoft Excel. Both of these applications can be integrated with eBay, making it super easy to transfer your sales data from My eBay, Selling Assistant or Selling Manager.

eBay Accounting Assistant is free to download and helps you import your eBay and PayPal data from eBay, and export it directly into your QuickBooks company file. It’s free, but you need to be subscribed to Selling Assistant or Selling Manager to use it. It’s a great way of reducing data-entry time and minimizes transcription errors.

For help on using Quicken or Excel, visitAll Business for free resources and tutorials.

Importing Records

If you import goods into Canada, your records must indicate the price you paid for imported goods, and list their origin and description. They must also include any documentation about the reporting, release, and accounting of the goods, as well as the payment of duties and taxes.

Find more information in the Canada Importing Guide.

Business Number (BN)

You may need a Business Number to file your tax returns if your business meets one or more of the following criteria. The BN is a numbering system that simplifies and streamlines the way businesses deal with Canada’s Revenue Agency.

Apply for a Business Number here: Request a Business Number Form

See Canada Revenue Agency for more information.