*This is a Guest Post by Tina of H&R Block.
Congratulations, you started a blog. Or perhaps you have a blog and the traffic has started to pick up. Or perhaps your blog is starting to earn more money and you are already planning retirement. At what point does your blog stop being your hobby and become a business? The simple answer is that once you start earning money from your blog, you are a business in the eyes of the Canada Revenue Agency.
There is a misconception that you need to earn a certain amount of income before you have to report it. Unfortunately, this is not the case. The CRA wants to know it all. They post no minimum requirements before you need to report business income. So if you are selling ads or accepting merchandise in exchange for a review, then you need to file a T2125 Form as part of your personal return.
The T2125 Form allows you to report your business income as well as reasonable business expenses you incurred to earn money. It may be tempting just to write your income on Line 104 on your tax form as “other employment income” but the CRA has been reviewing these types of entries and asking people to file a T2125 instead. If you decide to go the Line 104 route, you cannot claim your business expenses.
Claiming business expenses helps reduce your tax payable. And you can earn up to $10,527 federally in 2011 before you have to start paying income tax, so if you only earned a small amount, you aren’t facing income taxes. If you earn more than $3,500, you will be responsible for the employer and employee portion of the CPP premiums. But reporting your income will help you build contribution room for your Registered Retirement Savings Plan (RRSP).
Your business expenses can add up. If you only have one Internet connection for your house, you will not be able to claim the entire expense on your business. The CRA assumes there is some personal use and you should track your business versus personal use, but you can claim a portion of your Internet bill as a business expense. And if you have a dedicated corner of your home for blogging, your home-office expenses can add up. The amount you can claim will be based on how much space your office takes up in your house. Your computer, cell phone and office supplies are also expenses that you may be able to claim.
The tax man will expect you to report merchandise or services you have received in exchange for writing a review. If you are receiving unsolicited swag or press kits from PR people, this does not need to be reported. However, if you agree to let someone advertise on your blog in exchange for the latest baby supplies, the value of the exchange needs to be reported. Bartering does not mean you can avoid the CRA.
And if you decide your blog is a hobby and not a business, you may want to review the case of the eBay PowerSellers. After a court battle, eBay had to identify these high-volume sellers so the CRA could review tax returns. The goal was to ensure PowerSellers were reporting their income accurately. The CRA does not care about garage sales or the occasional eBay listing, but it considers PowerSellers to be operating a business.
The Internet is increasingly becoming a business platform, and in step with that the CRA is taking a far more serious approach to people who make a living online.