The answer is yes, you generally do have to pay tax on affiliate marketing income in Canada. This is because affiliate marketing sales are categorized as income, and so you are obliged to pay sales taxes on the commissions you earn.
As a registered business owner who works for themselves, you still have an obligation to pay taxes on your income. However, the rules around affiliate marketing and taxation can be complex, so it is important to speak with an accountant or tax specialist to find out more. In most cases, you will have to pay taxes on your affiliate marketing income. However, there may have other rules around income and taxation that apply to you, so it is important to speak with an accountant or the Canada Revenue Agency (CRA) to make sure you are filing your taxes correctly.
What is affiliate marketing and how does it work?
Affiliate marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each customer or lead they bring to the business. In Canada, affiliate marketing is typically done through a third-party network, such as Commission Junction or Rakuten Marketing.
In most cases, an affiliate will receive a commission for each sale they generate. This commission can be anywhere from a few percent to 50% or more, depending on the program and the products being sold. In some cases, affiliates may also receive commissions for actions other than sales, such as signing up for a service or filling out a survey. Check out our blog post if you want to learn more – ‘How to start affiliate marketing in Canada’
The different types of affiliate marketing programs
The different types of affiliate marketing programs are:
Pay-per-sale (PPS): In a PPS program, the affiliate receives a commission for each sale they generate.
Pay-per-lead (PPL): In a PPL program, the affiliate receives a commission for each lead they generate. A lead is generally defined as contact information like an email address or a name and phone number.
Pay-per-click (PPC): In a PPC program, the affiliate receives a commission for each click on their link that results in a sale.
Pay-per-action (PPA): In a PPA program, the affiliate receives a commission for each action they generate, such as a sign-up or a purchase.
If you want to know more about affiliate marketing programs check out our blog post – Affiliate Programs for Canadians
How to know if you have to pay tax on your affiliate income in Canada
The rules around income and taxation in Canada can be complex, and so it is important to speak with an accountant or tax specialist to find out if you have to pay tax on your affiliate marketing income. Generally speaking, however, you will not have to pay taxes on this income unless it exceeds a certain amount.
What records do you need to keep for tax purposes?
In order to accurately report your affiliate marketing income, you will need to keep track of the following information:
- The name and contact information of each affiliate program you belong to
- The amount of money you earned from each affiliate program in the year
- The date of each sale or action that generated income
- The product or service that was sold or the action that was taken
- Any other relevant information, such as your social insurance number (SIN) or business name and address.
If you are registered for GST/HST, you will also need to track the amount of tax you charged on your affiliate marketing income. For more information, speak with an accountant or the Canada Revenue Agency (CRA).
How to file a tax return for affiliate marketing income in Canada
Once you have determined that you have to pay tax on your affiliate marketing income, the next step is to file a tax return. This can be done either online or through a paper return. For more information on how to file a tax return for your affiliate marketing income, speak with an accountant or the CRA.