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9 Tax Tips Canadian Amazon Reseller Should Know When Selling on Amazon.com

It was the summer long weekend.  We started our long weekend by celebrating my birthday at Niagara Falls.

As we get older, it’s less about presents but more about presence and experience.  😊

This year, I decided to try the Whirlpool Jet Boat Tours in Niagara Falls.

When you are sitting in the front row of a flat bottom boat with 150 horsepower propelling you through Class 5 rapids (max in North America is Class 6), you’re guaranteed to get water all over you!

If you’re looking for something fun to do, I highly recommend it for an afternoon fun!

                     Birthday celebration with Erwin & Charles in Niagara Falls

We were already in Niagara Falls, didn’t make sense not to stop at the casinos, right?

I don’t often play, maybe the first time in the last few years.

My favourite game is Blackjack.

Why Blackjack?  If you believe in probability calculation, blackjack is the only game that allows the player to have close to 50% chance of winning.

Yep!  If you follow the rules to play blackjack, and everyone else is following the same rules, you have close to a 50% chance of winning.

The casinos have a lot higher chance of winning in all the other games.

Some genius even invented a cheat sheet with all the rules of playing blackjack. 😉

Even with this roadmap to success, it’s not often easy to follow through.

The cheat sheet says that if the dealer is showing a 7 facing up, and you have 16 points, you are supposed to hit.

We all know there’s a 61% chance that the next card you get is 6 and up.  If you hit, you’re almost guaranteed to bust and lose money in this game.

BUT, the odds only work if you keep playing by the book.  The fact that you don’t get another card this hand will affect the next player and next round and many more rounds to come.

Sometimes even with a good roadmap to success, it still takes guts and perseverance to keep going.

Of course, blackjack is just a casino game.  It’s not comparable to running a real business.

Recently, many people are interested in setting up an online business to resell products on Amazon.

Many of them would look for opportunities in the Amazon site, source the products from Asia and become a product reseller to make some profit.

There are many books and online programs dedicated to teaching people the Amazon success formula, like the cheat sheet in Blackjack.

Like all other online and offline businesses, there is a lot of work involved in getting it started.

Like real estate, the first year always sucks!

Sometimes, it is a couple of years before you see any money in your pocket.

Sometimes, it is many sleepless nights, and you’re still not seeing results.

These are the moments that you see the dealer having the 7 showing, and you have 16, do you hit (keep going) or do you stop and hope for the best?

Even with all the successful blueprint out there, YOU still have to follow through and trust the process.

It’s not easy.  Owning a business is never easy.

Before you dive deeply into the new Amazon adventure, here are some commonly asked questions from my clients.

  1. Do I need to pay US corporation tax?

The answer is: it depends.

If you are simply a reseller and doing drop shipping and have no permanent location in the US, chances are, you don’t have any US corporation tax exposure.

If you stay in the US for a period, you may be required to pay US corporation tax, and you may even be required to get a business visa to stay.

Be sure to check both income tax law and immigration law to stay in compliance.

  1. Do I need to pay US sales tax?

The answer is: most likely yes.

Thankfully, if you are selling on Amazon.com, they will charge and remit sales tax for you.

All you need is to apply for a tax number through Amazon.com’s system, or if you already have one, provide it to them for the tax reporting purpose.

  1. Can I report sales in my personal name?

Absolutely.  Like all other businesses, you can hold the business in personal name or in a corporation name.

When you report the sales, net of sales taxes, less all the cost of goods sold and other expenses you incur to earn the income, you get taxed on the net income.

If you use $1M sales as an example and net income of $200,000, this $200K is taxed as self-employed income at your income tax rate.

Assuming you have no other income, you will need to pay $70K taxes plus roughly $5K of CPP contribution payable, a bill of $75K.

  1. What is the tax rate if I incorporate?

Reselling products on Amazon is considered active business income.

If you have a small business, active income is taxed at 13.5% in Ontario, $27,000 tax payable in Ontario.

We help our client to structure the corporation accordingly so to maximize the tax savings available.  We also work with our clients to minimize their personal tax liability when they take the money out via dividends.

You can, potentially, pay as low as $1,000 personal tax to take money out of the corporation.  You can also reinvest the cash in the business and buy more properties.

  1. What if I lose money initially?

If you lose money initially in the corporation, the losses incurred can be carried forward for 20 years to offset against future income.

Say you lose $15K the first year and makes $200K in the second year, the $15K loss that you incurred in the first year can be applied against the $200K, net taxable income for the 2nd year is $185K instead.

You get taxed on $185K instead of $200K in the second year.

  1. Do I need to pay HST?

If you are selling products straightly in the US, you do not need to charge HST.

If you are providing products in the Canadian market too, you will have to charge HST.

Depending on the market you are in, be sure to work with a professional accountant.

  1. Can I sell multiple products in one corporation? What about trade names?

Selling one product on Amazon may be a good starting point.  Many resellers quickly move on to sell a few products to increase the margin.

Can you sell multiple products in the same corporation?

The answer is yes.

You can even register multiple trade names to represent the different brands of the product that you are selling, all under the same corporation.

The only consideration is a risk.

You are mixing the business risk of selling one product with another.  If you get sued, the rest of the business can be jeopardized as well.

  1. Do I need a federally incorporated business?

Whether a corporation is federally or provincially incorporated, you are still required to pay both federal and provincial tax in the province that you stay in.

If you sell products in multiple provinces and you have a permanent establishment in a province, you are required to register a tax number with that particular province, subject to some exemptions.

This applies whether you are federally incorporated or provincially incorporated.

  1. Do I need a business bank account?

Yes, absolutely.

From a CRA point of view, it is important to separate the business money and personal spending.

If you take all the money in your personal bank account without properly reporting it as income, you can be deemed to have received shareholder benefits from your corporation.

Be sure to separate all the business transactions from your personal bank accounts.

Your next step?

Speak to an accountant to structure your company accordingly.

Follow the roadmap and be prepared for a lot of hard work!

Until next time, happy Canadian Real Estate Investing and happy Amazon reselling!

Cherry Chan, CPA, CA

Your Real Estate Accountant

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