How to declare your income and expenses as a blogger (Canada)
It occurred to me as I was filling out my taxes this year that maybe people don’t know how to claim blog income (that is, if they don’t use an accountant).
It’s actually pretty simple but there are some rules you have to adhere to.
OBVIOUSLY YOU NEED TO DECLARE YOUR INCOME ON A T1 and a T21215
Any income is income and you need to declare it with a T1 General Tax Return (this is for all Canadians, bloggers or not).
You report your blogging AND personal income on the same tax form. You do not need two separate ones.
You also need to file a T2125 to state your business or professional activities.
Everything is kind of included in that neat little form above, so just read the guide and follow its rules.
If you have more than one business, you need to file SEPARATE T2125 forms.
(E.g. you teach piano and you blog, you need 2 separate forms.)
YOU ARE NAICS CODE: 711513
You need to put the NAICS code (North American Industry Classification System) as a blogger.
The code I have used is 711513:
711513 – Independent writers and authorsCAN
This Canadian industry comprises independent individuals (freelance) primarily engaged in creating artistic and cultural literary works, technical writing or copywriting. Independent print journalists are included.
- freelance journalist
- journalists, print, independent
- newspaper columnists, independent
- playwrights, independent
- reporters, independent
- song writers, independent
STARTING IN 2013 YOU NEED TO LIST THE WEBSITES
As of 2013 you need to list the websites you make your income from and what percentage. This obviously means you need to put your blog name.
Other income you need to declare:
- static advertisements you place on your site for other businesses
- affiliate programs
- advertising programs such as Google AdSense or Microsoft adCentre
- other types of traffic programs
Remember that even though eBay is a website where you sell items, it is not specifically linked to blogging so even if you just eBay things regularly, you need to claim that as income but on a separate T2125 from your blogging endeavours.
INCOME IS NOT JUST CASH — IT IS GOODS TOO!
Laura in the comments made an excellent point to mention that if you receive goods in return for blogging, you will need to claim it as income as well.
So if someone sends you a lipstick to review and you get to keep it, you need to claim that retail amount as income.
YOU ARE A “SOLE PROPRIETORSHIP”
You do not need to necessarily register a business name or pay any fees for business registration, you can use your own name (your personal one).
You can certainly register if you want to, but it isn’t required.
You are considered to be running a business if you REGULARLY make an income. If you just wrote ONE article for ONE site as a one-off thing, it’s not a regular income, much like if you sold a few pairs of shoes but you don’t do it regularly, it is not an income.
If you always write articles each month for a site, it is a regular income and you are a sole proprietorship / business in the CRA’s eyes.
YOU DO NOT NEED TO REGISTER FOR SALES TAX NUMBERS ONLY IF YOU MAKE UNDER $30,000 (GROSS)
You do not need to register for business sales taxes either if you make under $30,000 gross if you are a sole proprietorship over 4 consecutive calendar quarters (a year).
Generally for blogging as it is more of a service business than a product one (e.g. you are not making a physical product to sell it to someone) but that makes no difference because sales tax numbers deal with how much income you make which pushes you into the category of having to start collecting taxes on the government’s behalf.
If you make over $30,000 you need to register for GST / HST sales taxes and you need to start charging and collecting your clients GST / HST sales taxes on the government’s behalf, as well as remitting those sales taxes on a regular basis (every quarter) with a form.
It’s fairly simple, it really isn’t that complicated (collecting or remittance).
The good news of all of this is that you can also start claiming back GST / HST sales tax credits on any expenses for your business, like if you buy a pen or a computer and you paid GST / HST on it, you can also start to claim sales tax credits when you remit your GST / HST to the government so essentially, you do not pay sales taxes on what you buy.
(I do this for my business.)
You can also voluntarily register if you wanted to even if you make under $30,000 but you have to collect and file for sales taxes each quarter.
YOU PAY TAXES ON YOUR BLOGGING INCOME AS PART OF YOUR PERSONAL INCOME
This is not a separate business income but a personal income you’ve made.
If you want to separate your business from your personal income, you have to dive into a more complicated world of taxes and set up your business as a corporation.
The benefits of being a sole proprietorship is that your taxes are very easy to file.
The downside is that you are on the hook for anything you do under your sole proprietorship / business, like if someone sues you for instance.
Anyway, you are taxed at your personal tax rate, so keep that in mind if you also work a day job — it may bump you into the next tax bracket but that is not a bad thing.
YOU HAVE UNTIL JUNE 15TH TO FILE BUT HAVE TO PAY BY APRIL 30TH
You have until June 15th to file these taxes, but I prefer to do them sooner because if you owe money, you still have to pay by April 30th.
BE CAREFUL OF HOW MUCH YOU CAN CLAIM FOR EACH BUSINESS EXPENSES
A meal out with a fellow blogger?
Don’t think you can claim 100%.
You can only claim 50% of it because they assume the client ate 50% of the bill.
All the business expense categories for the Canada Revenue Agency are located here with all the rules on what you can and cannot claim.
This is what it looks like (when you go to fill out the T2125 form):
You will note that for meals, they put “allowable part only”, so don’t try and put in the full amount.
DO NOT ASSUME YOU KNOW WHAT GOES INTO EACH BUSINESS CATEGORY
Be sure to read each business expense category carefully to know where each expense should go, and do not assume anything.
I know it sounds counterintuitive and annoying but “Supplies” does not mean “Office Supplies”.
For example if you buy a laptop just for blogging, an ink cartridge, or even a chair to sit at your desk DO NOT assume that it goes under “Office Expenses” or “Supplies“.
A laptop in this case, is considered a capital expense and you can claim capital cost allowance (CCA) to account for its life span, or its depreciation each year (much like a car when you drive it off the lot.). Although for laptops I believe they’re in a special category now where it’s a 100% write off with no half-life (meaning you just write it all off).
In addition, each capital cost (a chair, table, laptop, car etc) has its own “CCA class” which comes with its own rules of what you can and cannot claim.
HELPFUL EXPENSES SPECIFIC TO BLOGGERS:
- If you receive income in USD, don’t forget to use the tax year’s average conversion rate given by the Bank of Canada to calculate the CAD equivalent (you should do this for all USD dividends, income etc and keep a copy of the screenshot or PDF of what rate you took for proof)
- The section for RENT is not where you put housing rent if that’s also where you live and work; this is commercial or outside office space rent. If you want to claim part of your actual rent as your home business space, you need to use the Business Use-of-Home section to calculate that (see below for more info)
- Web Hosting Fees and stock photo licenses goes under ADVERTISING
- Business cards, flyers and posters go under ADVERTISING
- OFFICE EXPENSES include stamps, printer paper, pens and so on, but NOT capital expenses furniture, calculators, laptops, or equipment those are capital expenditures. Office Expenses are things that are consumable (they disappear with use).
- Internet Service Provider (ISP) costs go under TELEPHONE AND UTILITIES but only the percentage you use for blogging (e.g. 50%)
- Your cellphone can also go under TELEPHONE AND UTILITIES but only the blogger-specific part of it, not 100%!
- Bank / Paypal Fees can also be written off (don’t forget to convert the USD to CAD), but only if you have a specific business-only account and it goes under MANAGEMENT AND ADMINISTRATION FEES
- If you go to a blogger conference, this goes under TRAVEL (Hotel, Car rental, Gas, Public Transit, even a daily allowance for food is included but you need to read the rules for this on the CRA website). You can also put any expenses such as taxis or public transit as part of your blogger expenses if you travel within your own town but only if it was for a blogger conference or something related to blogging.
- For meals, this goes under MEALS AND ENTERTAINMENT, but you can only claim 50% of this.
- OTHER EXPENSES can include CDs, DVDs anything you had to purchase for blogging but you need to specify this clearly
HELPFUL CAPITAL COST ALLOWANCE (CCA) CLASSES FOR BLOGGERS:
The category for Cellphones / Telephones is kind of hazy / up for debate, and could be either under Class 8 or Class 52 depending on how you use it.
- Cameras and Video Recording Equipment: Class 8 costing $500 or more otherwise it goes under Class 12
- Photocopiers, Printers, Fax Machines, and Telephones: Class 8
- Laptops: Class 52
- Furniture: Class 8
- CDs, Discs, Computer Software, Accounting Software (like TurboTax or UFile if you use either to do your taxes): Class 12 — but not for things like Microsoft Windows because it’s an “operating system” and not a computer software
- Microsoft Windows Operating System Computer Software: Class 52 (some say iPhones qualify under this rule because you use it to “monitor and handle data” but you can use your own discretion for this to put it under Class 52 or Class 8)
When in doubt, always call the CRA and check any of the above information, as tax classes and expenses can change from year to year based on what the CRA wants to do.
Also if any actual Canadian accountants spot discrepancies, do let me know in the comments and I’ll update accordingly; I only play an accountant on the blog.
HOME OFFICE EXPENSES HAVE TO BE CALCULATED CAREFULLY
For things like home office expenses (internet, utilities, telephone), you can only claim the portion that you’ve actually used for your business.
So let’s say in a month you paid $50 for your internet connection. If 50% of the time you are using it to do blog-related stuff, you can claim 50% of the bill.
Or for utilities, you pay $100 a month for electricity, you can claim (based on your personal calculation) how much electricity is used for the whole month/year, and out of that amount, what portion can be attributed to blogging in your home office.
You need proof of all of this, by the way.
A way to measure this is to take the square footage of your home, find out how much square footage is attributed to your home office, and then apply that percentage to the bill, multiplied by what percentage of your home office use was just for blogging.
Then you also need to factor in the hours spent for personal versus business because obviously you are also using the internet / computer for personal use and not just for blogging.
1. CALCULATE THE SQUARE FOOTAGE OF YOUR HOME OFFICE FIRST
You have 500 square feet in your apartment.
Your home office is 50 square feet.
50 square feet / 500 square feet = 10% (your home office percentage of the household)
You pay $50 for electricity per month for personal and business use.
10% x $50 = $5
2. NOW CALCULATE HOW MANY HOURS SPENT IN THAT SQUARE FOOTAGE IS RELATED TO BLOGGING
Then if out of the 24 hours you spent 8 of them blogging (7 days a week!!!) then you need to multiply:
$5 x (8/24) = $1.66
So the formula is really:
10% x 33.33% x [Cost of Utility/ Heat etc]
If you do not blog 7 days a week and only blog Monday to Friday, or all Saturday and Sunday, adjust your hourly calculations to reflect that based on 24 hours a day, 7 days a week.
The final amount of 10% x 33% x $5 is how much you can put under electricity in your T2125 form, but you will need to subtract your Personal-use part of your “Home Office”, which in this case might account for 67% of that home office.
This is all recorded in dollar amounts and not percentages, so you will need to use Excel to calculate everything beforehand, and fill out the form correctly.
That section looks like this:
An example of how you’d fill out a T2125 form for business expenses is below:
Here’s how I would do this calculation:
|Business Use-of-Home Expenses||Total / Month||Total / Year||Home Office at 10%|
|Other Expenses: Water||$25.00||$300.00||$30.00|
|Minus: Personal-use part (67%)||$824.10|
|Subtotal of your Use-of-Home Claim (33%)||$405.90|
Basically, I’d calculate out the total amounts I paid during the year, then take 10% of that, and input that as “business use-of-home”, and then out of THAT, calculate how much was actually used for blogging / personal use (33%).
Again, this is assuming you blog 8 hours a day, 7 days a week.
Adjust accordingly if 33% is far too high.
WHAT ABOUT IF I PAY RENT?
If you pay rent, you can deduct part of that rent instead which goes under MORTGAGE INTEREST.
OTHER EXPENSES are things like Water or household/home office costs, but not anything related to things like your telephone bill, cellphone bill or Internet because you do not need any of those bills to run an actual home unlike heat, electricity, water, etc.
Perhaps you can also put “Internet” under here (iffy), although I’d strongly suggest using the business expense categories above (TELEPHONE AND UTILITIES) to record that because that’s where it should go, as it’s not necessary to running a home.
DO NOT CLAIM ANY BUSINESS EXPENSES WITHOUT ANY ACTUAL BUSINESS CONDUCTED
Don’t go out to a meal with your friends and claim it as a business expense unless you legitimately discussed actual blogging business with them.
I know it sounds like common sense but… sometimes it isn’t for some folks, and they throw everything they eat underneath this category and think it’s okay.
STOP BLOGGING IF YOU DON’T MAKE A PROFIT AFTER A FEW YEARS (LIKE 3)
I know this sounds like common sense but generally speaking, tax folks can understand that starting a business means you lose money in the first few years of doing it.
However… if you are CONSISTENTLY losing money over a long period of time and you are STILL in business for yourself, this will raise red flags to the tax man and say: Hey.. why would someone stay in business if they’re always losing money? Wouldn’t they just fold?
They’re going to think you’re cheating them (and frankly you probably are if you are really losing money each year but you continue to “stay in business”).
Scan or keep receipts of what you’ve paid for, and when so just in case they audit you, you’ll be kosher.
I like using Excel for this, and logging every single transaction with a short note to remind me of the date, and whom I met or what I did.
That’s it, my general guide on how to file taxes in Canada as a blogger if you are making a side income (even if it’s only $0.50!)