What T2125 tax expense category to claim Final Value Fees?

[intimewithmusic]

Can someone please let me know the correct Canadian T2125 tax expense category to assign Final Value Fees? The is a category called "Sales, Commissions and Fees" however that one is for Income and not Expenses. Thank you!

[ypdc_dennis]

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@intimewithmusic wrote:

Can someone please let me know the correct Canadian T2125 tax expense category to assign Final Value Fees?

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Guide T4002

Line 8871 – Management and administration fees

You can deduct management and administration fees including bank charges incurred to run your business.

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[intimewithmusic]

Thank you very much! That t4002 guide description seems a bit comprehensive but I do think you're right unless anyone else has other ideas. I'm thinking that most sellers probably lump the insertion fees with the listing upgrades and the final value fees all together. It seems that the listing fees and upgrades should probably be attached to "Advertising" but in the end I suppose  it's "6 of one and half a dozen of the other". Thanks again ypdc dennis !

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@ypdc_dennis wrote:

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@intimewithmusic wrote:

Can someone please let me know the correct Canadian T2125 tax expense category to assign Final Value Fees?

---

Guide T4002

Line 8871 – Management and administration fees

You can deduct management and administration fees including bank charges incurred to run your business.

-..-

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[pierrelebel]

"most sellers probably lump the insertion fees with the listing upgrades and the final value fees all together"

Yes.  That is the correct way to handle your bookkeeping.

[fatdane]

I have always put ebay & similar on line selling site fees into advertising. The CRA auditor didn't say a thing when i was audited.

[intimewithmusic]

Interesting. Each auditor can handle designations differently. I was once asked to regroup my auto expenses. I think that was because I was claiming a portion for personal. In the case of ebay administration fees versus advertising an auditor might not care much as neither ratio will be high compared to other expenses and both are 100% deductible as a cost of doing business. Getting your item viewable on eBay for public purchase to me is advertising. The cut eBay takes on the sale price and shipping to me is a sales commission. None of those two expenses forms a part of Cost Of Sales so I doubt if the auditor would have a problem. I'm guessing pierrelebel is right is suggesting most ebayers lump them together. If anyone has had a problem with that please let us know! Thanks.

[pierrelebel]

Here is a sample P&L I prepared many years ago for eBay sellers:

http://pierrelebel.com/lists/P&L-sample.htm

This is the exact format I have always used when reporting my business income - I never used CRA forms.  Like fatdane, I have also been audited for two years (both income tax and GST/HST) and the format was acceptable to the auditor.

[recped]

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@fatdane wrote:

I have always put ebay & similar on line selling site fees into advertising. The CRA auditor didn't say a thing when i was audited.

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Bottom line is that it doesn't really matter where it goes as long as it's on the Expense side, the net result would be the same no matter which category of expense it's shown under.

In my own financial statements (not the T form) I have eBay fees in "cost of goods" rather than as an expense (PayPal fees under bank/credit card fees). Again the effect on the bottom line is exactly the same and that is really all that matters. If a cra Auditor wants it to go somewhere else they can make it so.....it still won't change the bottom line by even a penny.

There are lots of ways to report income and expenses, doesn't really matter which way you do it as long as the Net Profit number isn't affected differently. It's is a good idea no matter where you slot it in that you maintain a consistency from year to year for your method.

[intimewithmusic]

I think we are all on the same page. Distinctions between the types of business may vary . To clarify for 30 years my returns have been "self employed proprietorship" (BC) . Before that  I was operating a large retail center I used to use Peat Marwick's accounting (very costly). After a downsize I used a medium sized firm (didn't know what they were doing). I switched to an independent English accountant operating out of his basement. He was the cheapest by far the best of all. Eventually things got redundant so for the last decade I've done it myself. I too have been audited without issues.  All business are entitled to structure their books/statements any way they want. Inevitably those numbers are transferred to CRA's forms (or electronic format).  It's not possible to file tax without using CRA's categorizations  including the T2125 Statement of Income & Expenses if you happen to be a self employed proprietor like me. If you use third party software IE: Turbo Tax or something similar it may not be apparent but upon hitting "Send"  all your data is translated in the background to the CRA forms upon filing. Only when you get audited does the CRA care about your coffee stained ledger or where anything is posted. There are "formulas" related to the type of business you run that triggers audits. My larger business is house painting. I think the biggest trigger is "COGS" or cost of sales IE: cost of goods sold.  I would recommend only what the goods cost to make saleable be included in "COGS" . Someone above said they lump all 3 Ebay fees (listing, listing upgrade, final value) in COGS.  I would not do this. They have nothing to do with preparing or manufacturing the merchandise and doing this will offset the ratio of your largest asset. It's not a huge amount so may not send out a red flag but even so your merchandise is an asset and not expensable until it is sold. If that asset sits on your books with advertising incuded in it you don't get the expense in the period you paid for it.  Never include extra expenses in COGS that should be in admin. For example the cost of paint to paint your house should be about 30 to 35% of the job. Let's say a painter claims a lot of extra paint on his P/L statement. He puts the ratio to COGS at 45% That will send a red flag. We all know audits are painful timewasters especially if you employ an accounting firm. Much better to follow the CRA categorizations.

[rose-dee]

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@recped wrote:

There are lots of ways to report income and expenses, doesn't really matter which way you do it as long as the Net Profit number isn't affected differently. It's is a good idea no matter where you slot it in that you maintain a consistency from year to year for your method. 

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I agree with you.  What CRA (and auditors) would be looking for are anomalies, not semantics.  As long as it makes sense, stays consistent, and ends up on the proper side of the balance sheet, I doubt they will ever complain.  

[strapmillcanada]

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@intimewithmusic wrote:

I think we are all on the same page. Distinctions between the types of business may vary . To clarify for 30 years my returns have been "self employed proprietorship" (BC) . Before that  I was operating a large retail center I used to use Peat Marwick's accounting (very costly). After a downsize I used a medium sized firm (didn't know what they were doing). I switched to an independent English accountant operating out of his basement. He was the cheapest by far the best of all. Eventually things got redundant so for the last decade I've done it myself. I too have been audited without issues.  All business are entitled to structure their books/statements any way they want. Inevitably those numbers are transferred to CRA's forms (or electronic format).  It's not possible to file tax without using CRA's categorizations  including the T2125 Statement of Income & Expenses if you happen to be a self employed proprietor like me. If you use third party software IE: Turbo Tax or something similar it may not be apparent but upon hitting "Send"  all your data is translated in the background to the CRA forms upon filing. Only when you get audited does the CRA care about your coffee stained ledger or where anything is posted. There are "formulas" related to the type of business you run that triggers audits. My larger business is house painting. I think the biggest trigger is "COGS" or cost of sales IE: cost of goods sold.  I would recommend only what the goods cost to make saleable be included in "COGS" . Someone above said they lump all 3 Ebay fees (listing, listing upgrade, final value) in COGS.  I would not do this. They have nothing to do with preparing or manufacturing the merchandise and doing this will offset the ratio of your largest asset. It's not a huge amount so may not send out a red flag but even so your merchandise is an asset and not expensable until it is sold. If that asset sits on your books with advertising incuded in it you don't get the expense in the period you paid for it.  Never include extra expenses in COGS that should be in admin. For example the cost of paint to paint your house should be about 30 to 35% of the job. Let's say a painter claims a lot of extra paint on his P/L statement. He puts the ratio to COGS at 45% That will send a red flag. We all know audits are painful timewasters especially if you employ an accounting firm. Much better to follow the CRA categorizations.

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Regarding COGS - If my goods were purchased using USD and I paid for it in CAD via paypal/credit card, I'm supposed to use the exchange rate from the Bank of Canada's website for that day instead of the exchange rate from paypal/credit card?

Just wanted to double check because I remember reading about this topic on here a long time ago but can't seem to find that thread anymore.

[ypdc_dennis · Accepted solution]

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@strapmillcanada wrote:

Regarding COGS - If my goods were purchased using USD and I paid for it in CAD via paypal/credit card, I'm supposed to use the exchange rate from the Bank of Canada's website for that day instead of the exchange rate from paypal/credit card?

Just wanted to double check because I remember reading about this topic on here a long time ago but can't seem to find that thread anymore.

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I use the actual exchange rate that I paid for the transaction.

Bank of Canada exchange can be used when you paying US$ (with a paypal balance for example) for US$ goods and you don't want to spend time figuring the buying exchange rate.

Just as long as you are consistent with your record keeping.

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[treadstone68]

I really like the idea of lumping ebay fees with "cost of goods".  I was wondering how I was going to account for eBay fees since the payments from eBay already have that fee deducted.

[intimewithmusic]

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