A New Schedule for the T2 for 2013: Internet Business Activities

A corporation is now required to file the one-page schedule 88, “Internet Business Activities,” with the T2 return if it earns income from one or more web pages or websites. The schedule is applicable to the 2013 and subsequent taxation years, so even taxpayers that have already filed their returns are required to comply. This new schedule was apparently posted on the CRA website in early December, and it is not yet included in the commonly used Taxprep tax return preparation software. While the disclosure requirements of schedule 88 may not be very onerous, depending on a corporation’s specific business use of the Internet, its application is broad, its rationale is uncertain, and its specific disclosure requirements are unclear.

Who Must File?

Normally, if a corporation earns income from Internet business activities, it must file schedule 88 because it has its own web page or website. However, a corporation is also required to file schedule 88 if it does not have a website but has created a profile or other page describing its business on a website operated by others (a blog, auction, marketplace, or any other portal or directory website) from which it earns income. A corporation is considered to earn income from such a web presence in several situations.

  • Goods and/or services are sold. The web page may have a shopping cart and payment transactions may be processed, either directly or through a third-party service.

  • Customers submit purchases, orders, or bookings by phone, e-mail, or a form (presumably on the basis of information provided through the web presence, although the form does not say this).

  • The corporation earns income from advertising, income programs, or traffic that the site generates — for example, static advertisements placed on the corporation’s website for other businesses, affiliate programs, advertising programs such as Google AdSense or Bing Ads (referred to in the schedule as “Microsoft adCenter”), or other types of traffic programs.

The filing requirement does not say whether the corporation’s Internet business activities must be directed at Canadian or foreign customers; any taxpayer that is required to file a T2 is caught in the net if it has an income-earning web presence anywhere in the world. The filing requirement also does not say whether the Internet business activities must be carried on throughout the year, so a business that temporarily participates in a crowdfunding portal would have to file. The schedule does not say whether a not-for-profit corporation must file.

Required Disclosure

The corporation must specify the number of web pages or websites used, the URLs of the five pages or sites with the most Internet income, and the percentage of the corporation’s gross revenue generated from the Internet (which presumably means generated from the web, as opposed to e-mail). One important question about this section of the schedule is whether the calculations of Internet income and gross revenue are to be done on an average basis across years or whether they are specific to the particular taxation year.

Audrey Chan
KPMG LLP, Vancouver

Canadian Tax Focus
Volume 4, Number 1, February 2014
©2014, Canadian Tax Foundation