Internet Business

QUESTION: Dear David,

I would appreciate so much if you can let me know the tax implications of my eBay business - I started a eBay business selling electronic products. I am a Canadian citizen living in Vancouver. I have arrangement with my suppliers in China to ship the sold items directly from China to my customers all over the world. I do not keep inventory myself nor do I import any products. All I do is to sell on eBay on my home computer. I'm the owner of the eBay account. The proceeds are in US dollars, and is deposited into my bank account in the US, and is used to pay my supplier and other expenses such as eBay fees.

What do I do about tax? Is it a good setup? Please help me!!!

Thank you so much!


david ingram replies:

Your business is based in Vancouver and must be reported on line 135 of your Canadian T1 income Tax return.

The next problem or question involves the US where you are not physically working but apparently have a bank account where all expenses are paid from and where all money is deposited.

I wonder if you have rented a mail box or office identification spot and have a US address on your cheques and account.

If so, the appearance of a fixed base may be enough for the IRS to try and tax you and if it is based in Washington State, trhe "STATE of WASHINGTON" might want to assess a business tax for the business done in Washington Statebut it would only apply to sales made to Washington state Addrresses.

A mail box is not usually thought of as a fixed base but it would be better to pre-empt the US authorities.

I believe you should file a US 1040NR with schedule C and claim exemption from any US income tax under Article XIV of the US / Caanda Income Tax Convention (Treaty). This gives the IRS the chance to see what is happening and challenge you now rather than later.

You would then file your Canadian return and fill in form 2124 and put the results on line 135 of your return.

Because you live in Canada, neither your US 1040NR or your Canadian T1 is due until June 15th.

If you need help, we would be glad to assist.