WHAT IS AFFILIATE INCOME?
Affiliate income is an amazing way to make a little bit of extra money. Essentially the same as a commission, you are responsible for selling a product/service for another business owner and receive a payment – whether percentage or flat fee – for bringing them customers. When you believe in something and you can get paid for sending people in the direction of that service or product, it’s really awesome to be rewarded and you can turn that into another stream of income.
RECEIVING AFFILIATE INCOME
When you are making some affiliate income, I would recommend that you keep a separate income line in your bookkeeping. This way you can track much you are making from it and then figure out how much time you should be spending on promotion. Keeping track of the amount allows you to to do a cost-benefit analysis.
So that’s the number one thing. Now, when you are receiving affiliate income, if you have an HST GST number, you are required to charge tax on your fees. And this is the one piece that I see people forget a lot. Because a lot of affiliate fees are paid automatically, and there is no invoice sent, there is no way of knowing whether HST GST should be included. The way that our Canadian sales tax systems works is that the person who’s paying the affiliate fee should be backing the HST GST out of those fees and the person receiving the affiliate fee should be removing or charging the sales tax on top.
This is the piece that doesn’t flow very easily through most of the affiliate programs that I’ve seen. If you have hit the $30,000 mark in sales, it is your responsibility to inform clients that you are charging them HST GST. And if you have a sales tax number, make sure you’re backing that out of your income because it is your obligation to the CRA.
If you’re receiving affiliate fees from outside of Canada, it’s a whole different story, right? Because on any kind of foreign income you don’t have to charge HST GST. Anyone ‘client’ living outside of Canada who doesn’t have a Canadian address is exempt from paying our sales tax.
Keeping track of your affiliate fees in a separate income line and making sure that you’re meeting your GST HST obligations are important. And then what happens when you do some promotion or some marketing or have some expenses against this? Well, in that case, you want to be tracking your expenses!
When you are tracking your expenses, it’s kind of nice to have a separate line in your profit and loss so that you can see how much you’ve spent on making this income. Because again, if you’re spending more money than you’re actually receiving, you might want to revisit the amount of effort that you’re putting into it. So keeping track of the marketing expenses you have for promoting this product or service for other people makes sense so that you can look at your income line minus your expense line and see what you’re actually making from this effort. It will help you understand your numbers better and understand where you should put your energy.
PAYING AFFILIATE FEES
Now, from the angle of paying out affiliate fees – you’re thinking about all of this, but backwards. So you’re paying somebody to promote your product or service an affiliate fee. The most important thing you want to know is if they have a GST HST number, because if they do, then you should be claiming that part of the payment back with your GST HST return.
So you have to be gathering that information from your affiliates. And like all invoices in Canada, it should have their HST GST number on it so that if you ever get into an audit situation, you have the proper information and back up for your numbers.
Affiliate income is a great way to make some extra money, promote a service or product that you love and believe in, AND support other business owners, just make sure you’re doing your bookkeeping correctly!