Here is an interesting issue that needs to be dealt with. Buying and selling on the internet is good, but if you are a business owner there are a few things that you should know. If you are a seller, pay attention because this will affect you as well.
Receipts
Buyers
It is ok to ask for a receipt. If you want to, bring your own receipt book and get the seller to fill it out and acknowledge what you are buying and how much you are paying for it. In fact you should get receipts so that you can document your purchases to your accountant, and to the CRA.
If the seller is unsure you can point out the information below to them and show them how it is in both your best interests to give you a receipt, and how it could actually save them some grief.
Sellers
Giving a receipt is ok. The items you are selling qualify for exemptions under the Income Tax Act. The items you are selling most likely qualify under what is called Listed Personal Property). This means unless you are selling items for more than $1,000 each (I will repeat that, $1,000 EACH) there are no tax consequences, and you do not need to report the amounts on your income tax return.
Further, chances are you are selling things for less than you paid for it, so it is a loss anyway (which the CRA will not allow you to claim). FYI, losses will not cause you to have to pay tax on the amount you received.
Payments
Buyers
Out of necessity you have to pay cash for things you purchase on the internet. I mean I am not taking any rubber cheques, so I don’t expect anybody else to trust that I am not going to give you a rubber cheque. The problem is that you have to take money out of your business (and bank account) as cash, which the CRA is going to assume is for personal expenses.
The CRA will then want you to pay tax on the cash you took out. This means that you will be double taxed. You bought equipment which the CRA will not believe, and therefore you will not get a deduction for it. Secondly, because the cash was for “personal use” the CRA will want you to pay tax on it again because you took it without paying personal income tax on it.
Sellers
If you are audited the CRA is going to look at your bank accounts, credit cards, lines of credit, and anything else they can think of. So if you deposit money into your bank account, or use undeclared cash to pay your visa card, the CRA is going to assume that you have unreported business income.
Having documents that support what you did and for how much can help save your backside. By documenting what you sold, how much you sold it for, and to whom, you will have the information to prove to the CRA that you do not have unreported income.
In short documenting sales and purchases is good for both the seller and buyer, and is going to HELP you from an Income Tax perspective. Not everything causes taxes to be owed. If you don’t believe me look up Listed Personal Property on the CRA website.
