How to Declare Amazon Royalties on a Canadian Tax Return
👤 Smartryk Foster 📖 . Edited: 📚 Living Advice
(Edit: Someone asked 'Do I have to file a U.S. tax return if I'm a Canadian author or publisher who sells books through KPD (Kindle Direct Publishing)?' And the answer to that is, 'Maybe?' KDP has a page that gives more information about that. The IRS (Internal Revenue Service) has more information about this that I will post at the end of this article.)
I recently had a question: How to declare Amazon Royalties on a Canadian Income Tax Return.
So I searched the Internet and found few answers, old information, and more questions than answers.
So I called the CRA.
This information is from a call (actually several) that I had with the CRA (Canada Revenue Agency) about foreign royalties and where to declare them on a Canadian Income Tax return.
The following information is not legal advice. Contact your Accountant and a Lawyer for advice.
The following information is what I have discovered by reading online and calling the CRA. You can call them yourself to verify this information.
I recommend that you verify this information.
That being said, this is what I’m working on.
Where do you declare foreign royalties on an income tax return?
Amazon is an American company and they give a U.S. IRS tax document that states the amount of royalities that they paid to you in the previous year (if they paid you in the previous year). They don’t always pay in the year in which a sale is made, particularly for sales made in November and December, because they don’t pay out royalties in the same month in which the sale is made. So if you earned royalties in December and Amazon paid you those royalties in the following year, those royalties will be shown in the tax document that represents the year in which you were paid by Amazon.
This means that you need to keep a copy of your Sales Reports and Payment Report to prove your income, along with the IRS tax dorm that Amazon sends you.
CRA doesn’t ask you to include proof that royalties were paid in your income tax return. They do ask you to keep that information in your files in case they’d like to see it.
That said, where do you declare foreign royalties in a Canadian income tax return? (Royalties from a Canadian source get declared on line 12100 and you should have gotten a T5 that states the amount of royalty you have to declare on line 12100.)
If you’re an author and some other entity is the publisher, then you commonly declare a royalty on the line for foreign income (line 10400 for this year’s tax return).
If you’re NOT simply the author, or you were involved in publishing the book (or whatever you were getting royalties from), then it’s not as simple as that.
Amazon collects and remits Canadian sales tax, so you don’t have to worry about that.
If you control the ISBN (International Standard Book Number), ISMN (International Standard Music Number), or ISSN (International Standard Serial Number) then you are the publisher.
ISBN, ISMN and ISSN numbers are available through Library and Archives Canada, as one of the services they offer for Canadian publishers (and self-publishers). (Edit: All the links have changed since Library and Archives Canada moved to a new website. I've left quoted text, but the pages they were quoted from no longer exist; I've updated all the links to the new pages on Library and Archives Canada.)
If you control the ISBN, then you are the publisher.
If someone else controlls the ISBN, then they are the publishing company or the publisher.
Quoted from: Are you a self-publisher? Here’s what you need to know!
ISBN
If you intend to offer your publication for sale in Canada, you will benefit by obtaining an International Standard Book Number (ISBN). Obtaining this product identifier is a free service that allows publishers to manage their ISBN account and logbook, to assign their ISBNs to future publications and to modify information about their publications.
More information about obtaining an ISBN is available on the LAC website.
Legal deposit
LAC accepts self-published books created to be sold or distributed to the public into its national collection via the Legal Deposit program.
More information about legal deposit is available on the LAC website.
https://www.bac-lac.gc.ca/eng/services/Pages/are-you-a-self-publisher.aspx
https://library-archives.canada.ca/eng/services/publishers/isbn/Pages/about-isbns.aspx
Quoted from: Legal Deposit program
Canadian publishers and producers are responsible for depositing their materials through the legal deposit program under the Library and Archives of Canada Act. By participating in the legal deposit program, they help build the national library collection.
Services and information
Learn about the legal deposit program, its history, the legislation, and its relation to tax deductions, copyright, and other services.
Canadian publishers and music producers, and what they deposit
Learn who is a Canadian publisher or producer. Discover the types of material accepted, and what is not accepted.
Find out how to submit material like e-books and e-serials.
Find out how to submit material like CDs, vinyl records, sheet music, and DVDs.
Find out how to submit material like books, magazines, journals, and maps.
https://www.bac-lac.gc.ca/eng/services/legal-deposit/Pages/legal-deposit.aspx
https://library-archives.canada.ca/eng/services/publishers/legal-deposit/Pages/legal-deposit.aspx
If you did not register as a publisher or self-publisher and receive an ISBN that was assigned to you, then you are not the ‘self-publisher.’
Whoever controls the ISBN (ISMN or ISSN) is the publisher.
That has ramifications because:
GST/HST information for suppliers of publications
Find out about the GST/HST and suppliers of publications
Generally, if you are registered for the GST/HST (or if you have to register), you have to charge and collect the GST/HST on all taxable supplies of goods that you make in Canada (other than supplies that are zero-rated). A supply of a good is considered to be made in Canada if it is delivered or made available to the customer in Canada.
This means that you do not usually have to charge and collect the GST/HST on supplies of goods made outside Canada (that is, delivered or made available to the customer outside Canada).
I suggest reading that page. It has a lot of information about what to do when charging sales tax in Canada, who it has to be charged to, and whether a person is an ‘agent’ of a Publisher or a ‘sales agent.’
And there’s a difference between the two:
Canadian Professional Sales Association
What is the difference between an agent and a distributor?
Frequently the terms “agent”, “distributor”, “rep”, and “partner” are used interchangeably. However, the difference between agents and distributors are distinct.
An independent or manufacturer′s agent is either a sole proprietor or incorporated entity working in an exclusive geographically designated territory or a particular market/customer segment. An agent may represent one or more principals (The term principal is used to describe the manufacturer or supplier of goods or services sold by the sales agent).
An agent may represent one or several non-competitive lines. The agent is compensated on a commission-only basis for goods shipped or billed from the principal represented. Agents control their own time and level of sales effort. The responsibilities and obligations between the agent and principal or company are usually outlined in a written contract between the parties.
A “distributor” tends to be an entity with brick and mortar assets, which purchases (imports) products, takes title, stocks, maintains inventory, and re-sells the product to end-users. Distributors or “dealers” usually work on a sliding scale discount basis and provide installation, repairs, customs and port clearances, delivery, and after-sales service such as warranty work.
https://www.cpsa.com/resources/articles/what-is-the-difference-between-an-agent-and-a-distributor
https://www.cpsa.com/learning-hub/what-is-the-difference-between-an-agent-and-a-distributor
So is Amazon a sales agent or a distributor?
I have read Amazon’s KDP (Kindle Direct Publishing) contract and they seem more like a distributor (they don’t tell clearly in the contract’s wording itself what they are in relation to you).
That being said, Amazon says individuals and sole-proprietors should sign up as ‘Individuals,’ not ‘Businesses.’ Legally, all sole-proprietorships are ‘personal’ and their income in personal income on a Canadian tax return.
Amazon collects sales tax from Canadian customers and remits it in Canada, so you don’t have to worry about that. But if you collect royalties from a non-Canadian entity that does not remit sales tax in Canada, but sells to Canadian customers, and if you control (publisher) the ISBN, then you should read that page carefully (GST/HST information for suppliers of publications) to determine whether they are an agent or a distributor and whether you’d be responsible for sales tax that must have been remitted.
Maybe this is the problem that people ran into years ago with Amazon and the CRA asking authors to remit Canadian sales tax.
Sales tax is collected at the point-of-sale. A business that collects the sales tax (or that is supposed to collect sales tax) is responsible for remitting that sales tax, unless it’s working on behalf of someone else (as an agent).
Amazon is not an agent. Amazon is a distributor (and the printer, if they use print-on-demand to fulfill orders). We know this because they pay royalties to you. You don’t pay commissions to Amazon.
Amazon is a publisher if they control the ISBN that gets assigned to a book.
https://kdp.amazon.com/en_US/help/topic/G201834170
(They let you choose to use your own ISBN or get one from them.)
Any company that assigns an ISBN or that lets you buy one from them is (probably) the publisher of the book.
Information for Sole-Proprietorships, joint authors, and people who use your ISBN on their own book.
So, how do you declare a royalty if you’re a sole-proprietor?
If the sale of your book was through your sole-proprietorship, then you can choose to declare it on your T2125 Statement of Business or Professional Activities declaration.
T2125 Statement of Business or Professional Activities
https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2125.html
Where on the form? As ‘Gross Income’, and you can choose to deduct costs associated with receiving a royalty
An author has a profit-sharing agreement with another author for the sales of a self-published book. Where does that go, and how is it declared, on a Canadian income tax return?
It depends on the agreement between the parties involved. It’s always best to get such agreements in writing. That means that you’ll have an agreement in writing if you need to show it to the CRA (and explain why a portion of your income was not declared. Amazon deposits royalties into one author’s bank account. A royalty split is something that is delt with by each author’s agreement and whomever puts the book for sale through Amazon).
What if I assign an ISBN to another author for use on his or her book?
If you assign an ISBN for another author to use (you are the publisher of the book because you were issued the ISBN by Library and Archives Canada, or whichever agency issued the ISBN to you) and the author uses that ISBN on their book and distributes it themself through Amazon or wherever, you would only declare royalties in your income tax return if you have a profit-sharing agreement with that author.
If you don’t have a profit-sharing agreement with that author, then whomever gets the royalty as income is responsible for income tax.
However, if you assign an ISBN for an author to use and that author gets an agent to sell to customers in Canada, but does not charge sales tax, you may be responsible for the sales tax that must be remitted, because you are the book publisher.
Then the CRA might want to determine whether that author was acting on their own or on your behalf as an agent (representing you or your business) and whether or not to charge you with whatever amount owing of sales tax that should be remitted.
Remember, this is not financial nor legal advice. Consult a lawyer if you want legal advice.
This is just what I’m doing on my tax return this year. (This information may not be valid next year. Consult a lawyer or/and an accountant each year for help with that year’s taxes because things might have changed in the income tax guide and tax package.)
Here is the tax information that I mentioned at the beginning of the article.
Do I have to pay taxes on my KDP sales?
The short answer: yes. Amazon requires all publishers, including nonprofit or tax-exempt organizations, to provide valid taxpayer identification in order to comply with U.S. tax reporting regulations. Tax withholding and specific requirements vary based on whether you are a U.S. person or non-U.S. person.
According to the IRS, for U.S. federal tax purposes, a U.S. person includes, but is not limited to:
- An individual who is a U.S. citizen or U.S. resident alien
- A partnership, corporation, company, or association created or organized in the U.S. or under the laws of the U.S.
- Any estate (other than a foreign estate)
- A domestic trust (as defined in Regulations section for Forms W-9 not required to be signed 301.7701-7)
Resources for non-U.S. publishers
If you are a non-U.S. publisher interested in claiming tax treaty benefits to reduce your withholding, you have to provide a tax identification number (TIN). If you have a U.S. TIN (ITIN for individuals, EIN for non-individuals), you must provide it. If you don't have a U.S. TIN and the tax authority in your country issues an income tax identification number, you may enter it to claim treaty benefits.
If your income is connected with a U.S. trade or business, and you file a U.S. income tax return, you are required to provide a U.S. TIN (ITIN or EIN for individuals; EIN for non-individuals) when completing the IRS Form W-8ECI. In general, your income is effectively connected with a U.S. trade or business if you have employees in the U.S., own, lease or control equipment or other assets in the U.S. that you use to generate revenue, or have a permanent establishment in the U.S.
It is not necessary to have a TIN in order to complete the tax questionnaire. However, any reduction of the statutory withholding tax rate (30%) applicable to your U.S. source payments will not apply until you can provide a TIN. If you are in the process of applying for a U.S. TIN, you can submit your tax information now in our online tax questionnaire without a TIN, and then retake the questionnaire once you receive your TIN from the IRS.
A U.S. TIN may take the form of:
- Employer Identification Number (EIN)
- Social Security Number (SSN)
- Individual Tax Identification Number (ITIN)
https://kdp.amazon.com/en_US/help/topic/G201723290
The IRS has some information about Tax Withholding and Form W-8 BEN.
Withholding on income from U.S. sources
What is the purpose of the Form W-8 BEN? (updated Feb. 26, 2024)
Foreign persons are generally subject to U.S. withholding tax at a 30% rate on gross income they receive from income not effectively connected with a U.S. trade or business. By providing a completed Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to the U.S. payer (also known as the U.S. withholding agent) before or at the time income is paid or credited, you are:
- Establishing that you are not a U.S. person,
- Claiming that you are the beneficial owner of the income for which Form W-8 BEN is being provided, and
- If applicable, claiming a reduced rate of, or exemption from, withholding as a resident of a foreign country with which the United States has an income tax treaty. In order to claim a reduced rate or exemption from tax under an income tax treaty, the Form W-8 BEN must include a valid U.S. taxpayer identification number.
The completed Form W-8 BEN is provided to the U.S. payer (also known as the U.S. withholding agent) before or at the time income is paid or credited. This form is not filed with the U.S. Internal Revenue Service. Visit Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, for more information.
You can read the International Taxpayers page on the IRS website for more help and look at the Tax Topics page if you need more specific help.
However, it seems to me that non-U.S. Persons don't have to file a U.S. tax return (which is why the U.S. withholds 30% of your KDP gross income, which means your royalty is subject to 30% tax withholding, and why entering your Social Insurance Number on form W-8 can let you take advantage of the tax treaty between Canada and the U.S.). The KDP Help page about Tax Withholding has more information about that:
Quoted from that page:
Non-US Person
All non-US Person must complete the US tax information questionnaire to be eligible to publish books on KDP.
All marketplaces: US tax withholding
Royalty payments for eBook sales on Amazon.com and print book sales on Amazon.com, Amazon.co.jp, Amazon.com.au, and Amazon.ca are subject to 30% US tax withholding, including payments from the KDP Select Global Fund. You may be eligible for a reduced rate of US tax withholding if your country of permanent residence has an income tax treaty with the United States. See the IRS website for a list of countries the US has tax treaties with and for a table of tax treaty rates.
You can check that whole page for tax withholding information in other countries, including Brazil and Singapore, if you sell in those marketplaces.
However, KDP will send you a tax form if you receive U.S.-sourced income that meets their income threshholds because they have to. You can find more information about that here. Whether you're required to submit a U.S. income tax form or not doesn't stop KDP from sending the tax form because they're legally required to do it.
Hope that helps. And remember, this is not legal advice. This is just my own research and I suggest you verify it. Ask a tax professional in the U.S. if you need more help or reach out to the IRS through their Contact options.
- Smartryk