Personal Finance

CRA going after paypal business holders

  • Last Updated:
  • Nov 17th, 2017 9:26 pm
Sr. Member
Jan 15, 2017
602 posts
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canuckchuck wrote:
Nov 14th, 2017 11:38 am
I've been using a business paypal account to run a personal items classifieds site. It take no commissions or make any revenue but the website does have users who sell and buy items on it. The amounts collected are sent to the Paypal business account and then forwarded to the selling/buying party. Any thoughts on how this would affect someone in like me? It was my understanding that if you do not make profits you aren't running a business, therefore it's like selling on Craiglist or Kijiji, through a third party platform. However, the platform it self it just a hobby not a business and doesn't make any actual revenue. I pay for the operation of the website and other expenses with my personal income (actual job) and do not report the expenses because it's a hobby for me.

Thank you
So many tax issues with what you are doing.

It is considered a big NO NO from a tax perspective to mix personal and business transactions. When this happens, the CRA will generally disallow the business aspect of your claim and consider everything as a personal transaction. This means you cannot claim expenses and any income will be taxed at the much higher personal rate.

You also need to get your head around profits, when a business is said to exist, revenue and the like. Revenue is generally the income that a business makes from the sale of goods and services. So, if you sold goods and you have a business - then you have revenue. Businesses exist in the absence of profits and losses. Lots of businesses record losses and are still a business.

Whether you have a hobby or a business will be determined by the CRA and as I stated above, it is to your advantage to be considered a business and not a hobby, as the income is taxed differently. Income is still income, regardless of how it is earned. It is how it is taxed that is your primary concern.

In your case, it seems that yes, you do have revenue from your venture although the venture is not profitable. You also have a business account handling through which these revenues flow. Revenue and profit are not the same things.

If you have not been claiming this venture on your taxes, at the very least I would suggest that you start collecting all your receipts and paperwork for this venture. You need to be prepared to defend why you did not claim this on your taxes and be ready to show that you suffered a loss because of it.
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Jan 27, 2007
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The designation of a PayPal account as "business" doesnt automatically mean you are running a business. CRA will look at a number of variables to determine if you are operating a bonafide business:

"For income tax purposes, we define a business as an activity where there is a reasonable expectation of profit and there is evidence to support that intention."

Generally, if you are buying and selling things on a fairly continuous basis, you are a business and you need to have some concern with what the CRAs intentions are. Start preparing by getting receipts in order.

Please see this information on personal use property (PUP):

https://www.canada.ca/en/revenue-agency ... perty.html

So if you sold a TV or other household item for $500 and flowed it through your "business" paypal account, the ACB and proceeds are both deemed to be $1000, and no gain or loss is reported. Nothing to worry about here. I you bought 10 TVs at $500 and sold them for $1000 each, thats a business and you have something to worry about.

CRA will likely target high volume, accounts for both tax and HST impications. That high volume might be realted to transaction $ amount or number of transactions.

Most likely the people teading this thread worried, are the ones that know they should be worried.
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Jul 18, 2016
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dutchca wrote:
Nov 14th, 2017 1:03 pm
It is true that HST is included in the cost of products purchased at the LCBO, but the CRA does not take that into account when doing an audit.
By the way, its well documented that the HST is included in the price of purchases at the Beer Store and LCBO. There is a clear ITC here.

http://hellolcbo.com/app/answers/detail ... er-product
Last edited by bewiseman on Nov 14th, 2017 1:19 pm, edited 1 time in total.
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drey2k wrote:
Nov 13th, 2017 6:32 pm
Typical 9-5 guy response
Sounds like a fine response to me. If you're making money, you should be paying your taxes just like the rest of us.

Full disclosure: I am a 9-5 guy as well....
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Nov 1, 2008
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Blazin_Sunfire wrote:
Nov 14th, 2017 1:21 pm
Sounds like a fine response to me. If you're making money, you should be paying your taxes just like the rest of us.

Full disclosure: I am a 9-5 guy as well....
That's exactly why you agree with the other 9-5 fella
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bewiseman wrote:
Nov 14th, 2017 1:12 pm
Ok, first of all, what you and others have said appears to correct. I have registered for a Business Number accordingly. I just got off the phone with a CRA/HST agent and here's what I have learned. I will confirm this tomorrow with the accountant.

The LCBO and The Beer Store already charge HST. Therefore, yes, I would take an ITC, if I've understood your question correctly.

So, a $100 purchase would look like this. I would charge the customer $100 + $8 delivery fee + $1.04 HST. I would only owe the CRA the $1.04. Here's why. My revenue is actually only $96.50, since the price of the product at the LCBO/Beer Store includes the HST. So, the revenue equals $100/1.13 + 8 = $96.50. The total HST is $12.54. However I have an ITC of $11.50 - the HST paid at the LCBO. This leaves a net amount of $1.04 owed - the HST on the delivery fee.

My key problem for 2017 and part of 2016 is that I have not been charging the HST on the delivery fee and it would appear that I should have been. This will be painful but not disastrous. I have fixed it already on my website.

Your numbers are correct, but I fear the CRA would assess as follows (Using round figures for ease):

Purchase booze $113 - includes HST of $13. You take an ITC of $13.

Sell booze to customer - $113, you collect and remit HST of $13.

Delivery to customer $ 10, you collect and remit $1.30 in HST.

The net in my example is you remit $1.30. You cannot net off the $13 paid to the LC and the $13 collected from the customer internally that I am aware of. Maybe there is a specific exemption.

We get to the same spot, but do you see how the accounting is different?

CRA would asses you on the HST you did not collect on the sale of the booze, but would allow you to go back and take the ITC on the purchases as well, but you would need to ask them to net those transactions when they assessed it. Were you taking an ITC on the purchase? If so, the piece that is missing is you collecting the $13 on the booze as well asthe $1.30 on the delivery. That could be costly.

If you are internally netting the ITC and collection of HST, I would suggest changing your bookeeping and filing of you GST34 to show gross amounts.

As I said before, call rulings (anonomousky). CRA Tier 1 service is atrocious and they dont understand the legislation.
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Nov 12, 2017
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gbill2004 wrote:
Nov 14th, 2017 1:11 pm
He didn't pay tax on $24. What's his bigger problem? Or is he saying that he has evaded more income than the $24?
The most I earned was only $26 MAX. I have no intention of evading taxes. I would think that I am only 17 and never started a business before.
Newbie
Nov 13, 2017
2 posts
Thank you for your response, I am wondering why my activities are considered business transactions. I am providing a service, free of charge for people selling used or new items. The listed items have their HST/GST collected from the retailers at the time of purchase, which they remit to the government. Since we do not make any purchases or hold inventory, how would this work tax wise? It's like a neighborhood garage sale, just online. Here's an example transaction: someone buys 5 coffeemakers at $50 a piece+tax because they saved money when they bought in bulk. They spent $262.50, they then sell 3 of the coffeemakers on our site for $40 each = $120 gross sales. The $120 is deposited into the Paypal account then we forward the amount to the seller. Is that still considered a business transaction? When this site was created, there was no intent to make money, we started off by selling some extra items we had online (all at a loss) and turns out there were others. How can I prove to the CRA the people who sell items online are selling at a loss? I don't see Ebay asking people to provide receipts for every listed item so that they can offer it to the CRA if they were audited.

Also, from the CRA website they classify small business income as:

"Business income includes money you earn from a:

profession
trade
manufacture or
undertaking of any kind, an adventure or concern in the nature of trade, or any other activity you carry on for profit and there is evidence to support that intention."


But what we provide doesn't fall explicitly under any of those categories.

Thank you again for your help
Last edited by canuckchuck on Nov 14th, 2017 1:55 pm, edited 1 time in total.
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Nov 12, 2017
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gbill2004 wrote:
Nov 14th, 2017 1:01 pm
You're probably going to prison. Get the lube ready!
Are you being serious? I am calling CRA to find out if that is worthy of a declaration.
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Nov 12, 2017
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Sanyo wrote:
Nov 14th, 2017 1:10 pm
If the cra comes after you for $24 I'll question how resourceful they are
What are you talking about?
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dutchca wrote:
Nov 14th, 2017 1:39 pm
Were you taking an ITC on the purchase? If so, the piece that is missing is you collecting the $13 on the booze as well asthe $1.30 on the delivery. That could be costly.
No, no ITC taken on the purchase. In fact, this whole issue of HST has been completely ignored since I incorrectly believed that my revenue was only the $8 delivery fee. I believed incorrectly that I was still under the 30K threshold.

It's still a multi-thousand dollar problem since those delivery fees add up and I now owe the 13% on them.

I think I actually need to break down the invoice for the customer so that they see more. Currently, it looks like this after the HST modification:

Subtotal: $27.85
Delivery Fee: $8.00
HST: $1.04
Total: $36.89

That Subtotal needs to be further broken down ( $24.65 + $3.20) so you as my customer see:

Subtotal: $24.65
Delivery Fee: $8.00
HST: $4.24
Total: $36.89
Last edited by bewiseman on Nov 14th, 2017 2:02 pm, edited 1 time in total.
Newbie
Nov 12, 2017
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gbill2004 wrote:
Nov 14th, 2017 1:11 pm
He didn't pay tax on $24. What's his bigger problem? Or is he saying that he has evaded more income than the $24?
I have not evaded any income whatsoever. I am working as a lifeguard for two places, where both I paid my fair share of income tax. I can assure you that working for the Aquatics Unit in a government organization, I would imagine that they are following the law.
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bewiseman wrote:
Nov 14th, 2017 1:12 pm
My key problem for 2017 and part of 2016 is that I have not been charging the HST on the delivery fee and it would appear that I should have been. This will be painful but not disastrous. I have fixed it already on my website.
I know the pain. When I first started out, I didn't understand the HST thing either and had to go back and correct going back ~1.5 years. Hopefully it won't be too bad to sort out.
Newbie
Nov 12, 2017
6 posts
and what about if someone have business account he just send money per yera expemle 10.000 but just receive $3000 ? he need to pay tax to ?

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