Now that we're 2 weeks past tax day in Canada (April 30th), I thought I'd write about an issue that directly affects Canadian affiliates and online merchants. So, be warned – for the purposes of this post the spelling may seem a little weird, like ‘cheque' and ‘humour' and I might even have to throw in the occassional ‘eh', eh?. 🙂
GST is the Goods & Services tax that we Canadians pay on almost everything we buy — with some strange exceptions, i.e. groceries that are not intended for immediate consumption. If you buy 5 buns, you pay GST. If you buy 6 or more, you don't.
The current GST rate is 5%, down from 7% a few years ago.
Do You Make More than $30,000 Per Year?
Most persons and organizations engaged in commercial activities in Canada who have annual worldwide, taxable sales of more than $30,000 must register for and collect the Goods and Services Tax (GST).
I therefore registered for GST a number of years ago, but because I was doing business online as an affiliate marketer, I did not collect GST. I expected that my Canadian merchants would collect the GST on applicable sales.
I did however, file regular returns to claim rebates for GST paid on items and supplies that I purchased for my business. The refunds were typically in the range of $100 – 200 every 3 months.
The ‘Mini' GST Audit
I'm fairly fastidious about dotting all the i's and crossing all those t's when it comes to dealing with Revenue Canada, so imagine my surprise therefore, whe, in the earlier part of this year, I received notice that my business was to undergo a ‘mini' GST audit.
OK, I collected and submitted the requested paperwork and fielded a few phone calls from the local Revenue Canada office in response to the submission.
“What exactly are you doing online?” and after explaining my income from affiliate marketing as commissions earnings, the next questions were “Who are your Canadian merchants?” and “How much did you earn in commissions from them?”.
So, I told them and then sumbitted more paperwork with the commissions from Canadian merchant separated out.
Then came the bad news – I OWED GST on those earnings!
Huh? Say what? My guess was that 95% of those products were sold to customers outside of Canada, but that apparently didn't matter. What DID matter was that I was providing a ‘service' to my Canadian merchants by placing advertising links on my site(s). Those Canadian merchants were therefore responsible to pay me GST on my commissions earned.
It didn't matter that they hadn't paid, I still owed the money – THOUSANDS of dollars in back taxes.
My first thought was to dump my Canadian merchants, but I quickly realized what a stupid response THAT would be, considering I was making good coin promoting their products.
Recouping GST Owed by Canadian Merchants
So… a better idea came to mind next and I approached those merchants, explained the issue and requested the GST owing.
The responses were varied.
Ken Evoy's company, SiteSell, was by far the easiest to deal with and the quickest to respond. The paid the outstanding amount almost immediately and then made arrangements to include a separate cheque every month for GST owed.
IWantU was a completely different story. It took more than a month simply to get someone to reply to my tickets (which generally resolved to a “Page not Found”) to the point where I finally sent a message asking if they were still in business. Their initial responses to my detailed explanation and request was to feign ignorance. When pressed, Eric Frangoe finally replied, stating:
Sorry for so late reply. It took me some time to investigate your issue. And actually according to the Terms and Conditions of the Agreement, that you agreed when signing up for our service, we don’t have to pay those taxes. We only pay you the money for traffic you brought. If there are some taxes that you have to pay, we don’t take responsibility for that. Sorry.
Especially considering the situation is completely revenue-neutral for Canadian merchants.
Essentially, the pay their affiliates GST for services rendered and then claim that as a rebate on their own tax filings.
In the IWantU case, I was totally on the hook for THOUSANDS of dollars — so no problem deciding to remove their advertising from my sites — nd I strongly suggest that all Canadian affiliates do likewise.
I did find one thing humourous about dealing with IWantU. I pointed Eric to a section WITHIN the IWantU affiliate agreement that read:
9. Pay Your Taxes, and Over-comply with Government Regulations. Adult businesses are under a microscope. …As an adult webmaster, you cannot get away with what other businesses get away with. You will be held to a higher standard.
Can you please give me url where did you find that 9th point. Is that some Canadian legislation? If it’s so please provide me with url so that I can check it. It seems that I can’t find it on internet.
Definitely better off NOT working with these bad actors.
Canadian Tire Deals with the Issue Upfront
Since going through this process, I've done a little research into how other Canadian merchants handle GST on affiliate commissions and it would seem that CanadianTire is one of the few that actually addresses the issue in their affiliate agreement. Here is the text from the Canadian Tire Affiliate FAQ:
We request a GST number for tax purposes only. It is the responsibility of every Canadian affiliate website to record the GST amount they receive from canadiantire.ca. In addition to the commission you will be earning canadiantire.ca pays affiliates GST for the services they provide. The GST amount is not included in the commission rate, instead it is added to the monthly commissions earned by affiliates.
Bravo! Well done!
Anyway, I hope that helps out the Canadian affiliates who read NPT.
NOTE: When I figure out how the HST is going to affect our lives, I'll let you know.
Hi Thanks for this Blog. It seems interesting to know about Canadian GST. Can you please explain in short , how GST works for any Blogger (residing in a GST applied country) , if he signs up for any Affiliate Marketing programs like Amazon of Different countries?
I mean is it mandatory for him to register for GST registration?
If Yes – What is he supposed to do with that GST number? I mean will he need to submit the same to Amazon in this case , if he is running affiliate program for Amazon’s products?
If he has sign up for all Countries separately like UK, US, Germany etc., will he need to submit it to all of them separately?
Who will deduct GST from whose earnings here?
Will it be amazon deducting GST (%) from that Blogger (in whose country GST is applicable)?
If amazon deducts GST , what that Blogger needs to do with that deduction? I mean If he is resident of Canada, and Amazon US deducts GST , will that Canadian blogger have to show that deduction in Canada ?
How many times do you file GST returns in a year ?
Richard James says
Great blog post,
Thank you for the fair warnings. I am a Canadian Business Owner with a large affiliate network launching shortly. http://www.thewholefoodproject.com.
I was wondering how to rectify this issue with Taxes and cross border subcontracting to American Affiliates. Ours are monthly subscription so it is a little different, but we eat the GST for our promotional team. I will make a note of this in our terms and conditions and let our affiliates know.
An interesting read. Most of my advertisers are American so I guess I am off the hook from paying GST on those commissions.
I have a question though… How about those Canadian advertisers that use American companies to run their affiliate programs. I am being paid by that American company the commissions and not the actual Canadian Advertiser, would I still need to pay the GST on those commissions?
Thanks for any replies…
Peter Fuller MBA CA says
Is IWantU a US or Canadian based company? They way they answered your question makes me think they are based in the US.
If they are Canadian based then they need to clearly state how they handle the GST, It is conceivable they they are dealing with a mixed affiliate base, some registered for GST and some not. They cannot claim that the GST is included in the commission rate if they pay the same commission to both registered and non-registered affiliates.
Also, they cannot unilaterally deduct the GST from the commissions paid and claim them as an ITC unless they have your GST number. This would imply that they told you up front what the actual rate was they paid you plus GST.
To Sue: HST will affect your online earnings exactly like GST except the rate will now be 13% in Ontario. Regardless, as a business the HST should be neutral to you. If you are working with a Canadian based company you should give them your HST/GST number and they should pay you commissions plus HST.
Most Network Marketing companies operating in Canada elect to pay the tax on behalf of their affiliates and thus affiliates do not have to register for GST/HST.
Sue Fleckenstein says
Thanks for the great post, I guess we should get a GST number just to be on the safe side, regardless of our income. Any comments about how the HST is going to affect our online earnings?
Lots of grammatical errors in the above but good info. In ‘the’ do you mean ‘they’?