Do You Have to Pay Tax When You Sell Things on Facebook Marketplace?

The only thing worse than seeing "Is this still available?" is being told you have to pay taxes on what you sold. The question I get from friends and family all the time:

Do You Have to Pay Tax When You Sell Things on Facebook Marketplace?

The answer is "it depends".

Generally speaking, if you're selling personal items you no longer use, like an old computer, or iPhone, for less than you purchased them, then you don't have to report it on your taxes. However, if you regularly sell computers, or iPhones on Facebook Marketplace to make a profit, then CRA might consider this a business activity. If your intention is to earn profit, then you would need to declare your earnings from these sales to the CRA as business income.

When is Facebook Marketplace Income Taxable?

The primary determinant of whether you need to report income from sales on Facebook Marketplace revolves around the nature and intent of the sale.

Are you selling personal items you no longer need, or are you operating what could be considered a business?

Here’s how you can figure it out:

1. Selling Personal Items: If you’re just cleaning out your closet and selling items you no longer use, like an old bike or your laptop, then typically, you don’t have to pay tax on these sales. This is especially true if you’re selling them for less than you purchased them, as is usually the case with used goods.
2. Running a Business: If you regularly sell items on Facebook Marketplace to make a profit, or if you buy items specifically to resell them at a higher price, the CRA might consider this a business activity. In this case, you would need to declare your earnings from these sales as business income.

Even if you think you're not running a business, the Canada Revenue Agency (CRA) maybe think you are a Peer-to-Peer (P2P) seller (see Canada.ca article here for more).

What About Capital Gains?

The conversation changes slightly when we consider items that might appreciate in value. According to the CRA, if you sell personal-use property, such as art, jewellery, or certain collectibles, for more than you paid, you might need to report a capital gain. Here’s how it works:

• If the adjusted cost base (ACB) and the proceeds of disposition are both less than $1,000, the transaction is typically not reported.
• If you sell an item for more than $1,000, calculate your capital gain as the difference between the selling price and $1,000 or the item’s ACB, whichever is higher.

How to Calculate Capital Gains on Sale from Facebook Marketplace?

For instance, if you bought a vintage watch for $800 and sold it for $1,200, your ACB would be considered $1,000 (since it's less than the selling price but more than the actual purchase price), and you would report a capital gain of $200.

Keeping It All Organized

The key takeaway here is that occasional sales of used personal items don’t usually attract the taxman’s attention. However, if your Facebook Marketplace activities could be seen as a business, or if you’re selling items that could qualify for capital gains, keeping thorough records is crucial. This includes saving receipts, tracking expenses, and recording details about what was sold, for how much, and when.

The distinction between personal selling and business activity can sometimes be blurry. If you find yourself frequently selling on Facebook Marketplace, it might be a good idea to consult with a tax professional to review your activities and determine if you need to adjust your tax reporting.

Remember, while making a bit of extra cash on Facebook Marketplace can be a smart way to declutter and manage your finances, ensuring you stay within the legal boundaries of tax obligations is key to avoiding surprises from the CRA later on.

For anyone stepping into the world of online sales, understanding these nuances can save you a headache come tax season. Whether you're an occasional seller or growing a profitable sideline, staying informed is your best strategy.

For more information, consult Canada.ca and if you’re looking for a CPA in Ottawa, please don’t hesitate to reach out.

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This is not legally binding tax advice. This is educational analysis. Say hello if you need help.

hello@taxesmadesimple.ca

WhatsApp - 613.600.4194

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