# Is a website a property?



## Four Pillars (Apr 5, 2009)

I had a discussion recently with someone who told me that you can amortize the cost of a website/blog (ie if you buy an existing one).

I have a hard time believing this, since I was under the impression that only depreciating assets were allowed for this. Buildings are allowed too.

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/cptl/menu-eng.html

Am I missing something here?


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## MoneyGal (Apr 24, 2009)

Complicated question, and I do not know the answer with respect to the purchase of "a website" (in quotes because there are multiple things you could be purchasing when you purchase "a website"). 

Short answer is that there are multiple forms of intangible property which are either deductible or subject to depreciation (but not necessarily CCA). 

These include, for example, "goodwill" assets such as customer lists, mining rights, rights of way or rights of access, non-competition payments, egg quotas, and many more. 

CRA defines a capital expenditure as one that provides "an enduring benefit." Accordingly, purchases of intangible property can give rise to a capitalized (depreciated) asset. 

Does that help?


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## the-royal-mail (Dec 11, 2009)

I have had a hobby website since 1998. I build/code the site myself and my ISP hosts it. I pay them extra on top of my regular ISP fees every month for the space required by my website files. There is no advertising on my site. 

The costs do add up, but since it's the ISP that pays for the replacement and upgrades at a server level and since it's just a hobby site for the benefit of others (and thus not a revenue generator) I never really considered writing off any of my monthly operating expenses.


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## MoneyGal (Apr 24, 2009)

TRM, that's the answer to a different question: is my website a _business _giving rise to deductible expenses? 

FP's question is: does the purchase of "a website" give rise to eligible capital expenditures (which can then be depreciated over time)?


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## Four Pillars (Apr 5, 2009)

I should clarify.

The purchase would be for a website/blog/business that makes a profit. So for example this person might buy a blog for $10k and then take it over - adding content, promotion etc. Perhaps the net profit would be $500/month not counting the time involved with running the site.

Not sure what the right terminology is, but it would be like buying a "business" or perhaps a franchise?

I don't see why a website business would be any different than buying a stock for investment purposes - you can't write that off.

But I don't know...


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## MoneyGal (Apr 24, 2009)

When you buy "a website" you buy (presumably) the domain name, the existing content, a stream of advertising revenue, the existing client/subscriber list, the right to make future postings under that name and to those subscribers, and "goodwill" associated with the name and content. These are all assets which add value to the business in excess of net (tangible) assets. 

Some of those - the goodwill and the subscriber list for sure - are eligible capital expenditures (and others may be; and there may be other factors I have not included). 

Here's the full CRA bulletin on eligible capital expenditures: 

http://www.cra-arc.gc.ca/E/pub/tp/it143r3/it143r3-e.html#P159_24450

Here's a short taxtips.ca link on how ECE is calculated, recorded and depreciated: 

http://www.cra-arc.gc.ca/E/pub/tp/it143r3/it143r3-e.html#P159_24450


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> When you buy "a website" you buy (presumably) the domain name, the existing content, a stream of advertising revenue, the existing client/subscriber list, the right to make future postings under that name and to those subscribers, and "goodwill" associated with the name and content. These are all assets which add value to the business in excess of net (tangible) assets.
> 
> Some of those - the goodwill and the subscriber list for sure - are eligible capital expenditures (and others may be; and there may be other factors I have not included).
> 
> ...


I don't see the taxtips link - looks like you posted the first link twice.

Thanks for the info - I have to admit that intuitively, I'm not any closer to understanding how this can be written off - however, that is not important. The question is whether it can be.

The reason I'm interested is because I purchased half of my site from my former blog partner a couple of years ago. I didn't claim any kind of depreciation or anything since I assumed I couldn't.

It wasn't a lot of money, so I'm not sure if I would go back and restate the tax filings or not.


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## CanadianCapitalist (Mar 31, 2009)

Four Pillars said:


> I don't see the taxtips link - looks like you posted the first link twice.
> 
> Thanks for the info - I have to admit that intuitively, I'm not any closer to understanding how this can be written off - however, that is not important. The question is whether it can be.
> 
> ...


So, did you write off your purchase as an expense? Are you wondering if you should have capitalized it?


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## MoneyGal (Apr 24, 2009)

Derp. This should be the correct link:

http://www.taxtips.ca/smallbusiness/eligiblecapitalproperty.htm

Now that I know a little bit more about your question, can I advise caution if you do decide to "write off" (very non-specific term, there) some of the expenses? 

As I said earlier, buying "a website" involves many different moving parts, some of which are eligible capital expenses, some of which are outright deductions, and some of which may be completely non-deductible. I suspect most of the cost would fall under the rubric of "goodwill" so would need to be depreciated according to the ECE rules, which are different from the CCA rules. 

Short quick version is that only 75% of the expense is claimable, and you deduct 7% of the balance each year from a special ECE account against income until the total has been depreciated.


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## Four Pillars (Apr 5, 2009)

CanadianCapitalist said:


> So, did you write off your purchase as an expense? Are you wondering if you should have capitalized it?


I didn't write off anything.

In my mind, it was like buying an investment. Like if you purchase some stock with the hope that you will make dividends and/or capital gains for a later sale. In that case you can't write off the purchase. 

I'll have to mention it to my accountant and see what he says.


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> Derp. This should be the correct link:
> 
> http://www.taxtips.ca/smallbusiness/eligiblecapitalproperty.htm
> 
> ...


Interesting. I guess I can see how "goodwill" would be a good chunk of it. 

7% per year is not very much. 

Like I said, I'll mention it to my accountant.


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## sags (May 15, 2010)

I own a website, and have been an observer of the domain name industry for many years now.

From what I understand, the taxation rules/benefits etc of a website are pretty well unknown in Canada.

The CRA could demand taxes from income earned by those fortunate individuals who make money from their website, but the overall vast majority of domain name purchasers and website owners, lose a lot of money on them.

Unless you have a lot of money to attain an outstanding domain name, such as sex.com (which recently sold for 13,000,000), most people fall into the category of hobby enthusiasts who spend a lot of money, tire of the idea, and then move on to something else.

I think the CRA would really rather not hear about websites, as the loss in revenue from all the money losing enthusiasts writing off their idontknowwhatiamgoingtodowiththerestofmylife.com domain name losses.

I think the CRA look at the businesses, which really profit from the selling of domain names, such as the registrars like GoDaddy, or the hosting companies, a little differently.

Maybe it depends on size. But I doubt the CRA wants to open up a can of worms and allow rampant speculation on domain names, at taxpayer expense.

Just the way I see it though.


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## sags (May 15, 2010)

As a further example:

My website earns about 100 dollars a year from advertising.

The hosting is free from blogger.com

The registration cost is 12 dollars per year.

So, I make about 86 bucks a year profit from the website.

But, over the years I have spent thousands of dollars on domain name speculation and lost most of it when I let the domain names expire.

If the CRA want me to file for the profits, I can also file for the losses.

I should also point out that domain names aren't owned. They are basically rented to an individual for as long as they maintain the registration fees. Although they are not owned, they can be sold. Basically, they are selling the right to register the domain name.

The ITA seems to have fallen behind the technology arena.


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## MoneyGal (Apr 24, 2009)

With all due respect, I disagree with most of your post, sags. 

This is part of the reason that I said "selling a website" means selling and buying a lot of moving parts. 

Domain name registration is clearly not a capital cost, but a current cost. It can be expensed against current or future income. There's no loss if there's no expectation of profit, so there's no real opportunity to write off many expired domain names that you let lapse. (That is, if you are truly in the business of buying and selling domain names, you must have an expectation of profit that is borne out within a reasonable timeframe relative to your expenses and effort. You cannot claim losses indefinitely.) 

There's no "opening a can of worms." The can is already open; the profits you make online are taxable. From a CRA press release: 

_Ottawa, Ontario, July 30, 2009... The Honourable Jean‑Pierre Blackburn, Minister of National Revenue advises Canadians that *the income they earn online is taxable*.

"Taxpayers should know that the tax laws that apply to traditional commerce apply in the same way to electronic commerce," said Minister Blackburn. _

That press release uses eBay selling as an example but is meant to cover all online transactions, including advertising on blogs.


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## Four Pillars (Apr 5, 2009)

I declare every single penny of income and expenses.

MG - since I seem to have your undivided attention... 

I was curious as to the taxation of selling a business (not that I plan to do this).

If someone starts a biz, say an online biz or lawn mowing company etc - has it as a sole proprietorship, earns income, declares expenses and makes a profit over time.

Eventually they sell it for $N after a few years.

I had thought that the increase in value of the company from zero to $N would be capital gains, but as I've proven in this thread - what I think isn't necessarily accurate.


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## sags (May 15, 2010)

Edit........sorry Four Pillars, I didn't mean to step on your post....I will back out for now.

An expectation of profit is the prime motivation behind domain name speculation or domain name development. People register hundreds or thousands of domain names and attach them to simply developed websites or parked websites (which contain little content and are pure advertising vehicles) in the hopes of earning money.

Unfortunately for them, it isn't quite that easy, and the vast majority of the domains get dropped when it is time to renew the registrations. Almost all of their domains will earn money individually, most often small amounts, as pennies are paid by advertisers merely for someone stumbling onto the site. Some of the websites may make more money and some of them may even earn a profit, but as an aggregate the registration costs will far exceed the profits and dissuade people from continuing to pursue this venture. It is the free markets way of dispensing with the weak.

If the Government requires that all revenue derived from these domains be claimed as income, and allows the deduction of registration fees as a current cost, there would be significant losses claimed by most domain investors.

If the "business" was operated as a sole proprietorship, would not the losses in excess of the revenue be eligible as a deduction against personal income from other sources?

Am I wrong here?


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## MoneyGal (Apr 24, 2009)

Sags: short answer: losses are claimable against other income BUT are subject to the scrutiny of CRA. If CRA decides a business has no reasonable expectation of profit (REOP, as it is known), losses will be disallowed while profits (income) are taxed. 

A couple of times you've suggested that the CRA "expectation" of the declaration of profits is conditional ("if CRA expects people to report the profits..."). It isn't conditional. The ITA requires that the profits, such as they are, be reported as taxable income. This is actually completely separate from whether or not losses are claimed, and it isn't distinct to domain name registration. 

There are many businesses that people start that don't pan out over time. I could start an antique refinishing business, or a laundry service, or insert any example here. If I have consistent losses over time that I try to take as deductible against other income, CRA will eventually step in and disallow the losses using the REOP test. There's no special rule w/r/t domain name registration or gold panning or any other highly speculative business idea - there doesn't need to be; the income is caught in the general rules w/r/t taxable income in Canada. 

(OK, that was not short.)

FP: I've been involved in the purchase and sale of several businesses over time. There are usually a couple of different things that are being bought/sold when a business changes hands, ranging from physical inventory (where that exists) to intellectual property and the aforementioned goodwill. There isn't a short answer as to how the sale of a business is taxed - it depends on what is being sold. However, incorporated businesses can give rise to a capital gain upon the sale of the shares (but sometimes it makes more sense to do what's called an asset sale and not structure the gain as a capital gain). Unincorporated businesses with no physical assets usually do not give rise to a capital gain upon sale.


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> Sags: short answer: losses are claimable against other income BUT are subject to the scrutiny of CRA. If CRA decides a business has no reasonable expectation of profit (REOP, as it is known), losses will be disallowed while profits (income) are taxed.
> 
> A couple of times you've suggested that the CRA "expectation" of the declaration of profits is conditional ("if CRA expects people to report the profits..."). It isn't conditional. The ITA requires that the profits, such as they are, be reported as taxable income. This is actually completely separate from whether or not losses are claimed, and it isn't distinct to domain name registration.
> 
> ...


I see. 

So what about an online business with no physical assets then? Is that mainly goodwill then? 

If an unincorporated biz with no assets doesn't cuase capital gain, then what does it cause? Ie if I sold my website, do I just not declare anything?


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## MoneyGal (Apr 24, 2009)

The proceeds of sale are either fully taxable as income or treated in a capital-gains-like manner as a credit to the eligible capital account. 

Here is an article from Jamie Golombek - not recent, but comprehensive:

http://www.jamiegolombek.com/printfriendly.php?article_id=836

The issues around the sales of businesses with intangible assets arise very commonly with financial advisors. If I buy someone's "book of business" or sell my "book of business," what is being bought/sold, and how is it taxable? That's what Jamie's article focusses on, but the article is more broadly applicable.


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## Four Pillars (Apr 5, 2009)

Thanks MG - good article.

The reason I'm asking about this stuff is not because I want to sell my business, but rather I'm trying to figure out if it's worth incorporating at some point in order to get the capital gains exclusion, if/when I decide to sell at some point in the future.


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## Eclectic12 (Oct 20, 2010)

Four Pillars said:


> [ ... ]
> 
> I don't see why a website business would be any different than buying a stock for investment purposes - you can't write that off.
> 
> [...]


Hmmm ... in a sense, the stock purchase price is written off. 

It goes into the capital gain calculation as an expense. If the sale is a gain, the cost reduces the gain. If the sale is a loss, then the cost adds to the loss but will only be useful if there are other capital gains to use the loss against.

So when buying a stock for investment purposes, it is only additional items like say interest expense, that need to be added.


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## marina628 (Dec 14, 2010)

I can answer this based on my own experience.I purchased a website in June for $192,000 ,we did not get to write off the expense as the site has big income and considered an asset.There is some depreciation that gets written off .I have a company that is 4+ years incorporated and 100% of our revenue is online from websites .Our accountant has had many discussions with CRA as she did not know in beginning how to do certain things.


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