Since affiliate marketing has become such a lucrative source of income for many online marketers, it’s no surprise that there’s been quite a bit of controversy surrounding the practice in recent years.
In Canada, there’s been heated debate as to whether or not affiliate marketing is legal. But, as with most things related to business, the answer isn’t always clear-cut. Let’s take a look at what the rules are when it comes to affiliate marketing in Canada, and whether or not you could be violating them.
What is an Affiliate Website
With affiliate marketing, you can make money promoting other people’s (or companies’) products or services. The easiest way to understand affiliate marketing is that it’s like being a salesperson for a company.
You will be rewarded for generating leads and making sales for that company. You won’t be getting paid to design websites or do coding, however; so keep your expectations reasonable with any type of affiliate marketing business you take on.
What Are Commissions
Commissions are a payment given to someone who has successfully introduced a client to another company. Many affiliate programs offer what’s called lifetime commissions, meaning you will receive commissions from that company for as long as your client remains their customer.
However, if you are unfamiliar with affiliate marketing, there are a few things you should be aware of before signing up for an affiliate program.
Can Affiliate Programs Be Tricky: Yes and no. Some programs have very stringent policies when it comes to making money by referring other companies’ products and/or services to your own clients/customers.
Who Are Commissions Paid To?
To answer that question, we first need to identify who commissions are paid to. An affiliate is someone who promotes a product for profit on behalf of a business, and receives a commission as payment for their work.
If affiliates sell products from multiple businesses, they might be forced to receive payments in different currencies. For example, if an affiliate sells one product on behalf of an American company and another on behalf of a European company, she may need to convert her payments into US dollars and Euros when receiving them from these two companies respectively.
What Forms Must Be Filed with the CRA?
Simply put, affiliate marketing is a way for online advertisers to give compensation to anyone who refers potential customers to their website.
This can be done through a referral link (which is usually how affiliates and blogs earn money) or through what’s called affiliate program code; some advertisers will also use coupons or special links (called tracking codes).
All you need to do is get people to click on those links, and then you’ll receive compensation from whatever sale resulted from that click.
Although it might sound complicated, affiliate marketing in Canada is fairly simple; you only need to file tax forms if your annual income exceeds $400. Many retailers offer affiliate programs for free.
Handling Real Estate as a Business
The laws surrounding real estate as a business is fuzzy at best. While some lawyers recommend treating real estate as a business, it may not be necessary depending on your circumstances.
For example, if you have passive investment properties that are rented out and generating revenue that you don’t directly participate in (for example, if they are owned by an LLC), then you might need to consider formalizing things such as having an accountant do your taxes or incorporating your business.
However, if you are buying properties with no intention of selling them and instead plan to rent them out for income—then there isn’t much need to treat it as a business.
Local Considerations
Local laws surrounding affiliate marketing are clear, but not terribly stringent. Depending on your niche and how you’re running your business, you may have to take an extra step or two to make sure that your practices are fully compliant with local regulations.
For example, online gambling is a major no-no in most countries and some affiliate programs will direct you towards those kinds of offers if they believe you’re based in a country where it is legal.
If you live and do business in a region where affiliate marketing is illegal, be sure to research the restrictions carefully before taking any action that might put yourself at risk.
Referral Fees From Non-Affiliated Parties
The main issue with affiliate marketing in Canada is that any referral fees from non-affiliated parties are often considered income and therefore taxable.
If you’re doing affiliate marketing through an established platform, then it will likely be no problem. Just make sure to keep your PayPal or Stripe account up to date, so you can pay for any necessary taxes on the funds you earn.
In general, when operating as a business outside of existing platforms (or just not being completely transparent), any income you receive may be seen as potential personal income, which may cause problems later down the line.
Vesting Schedule for Commissions on Resales and Buy & Hold Properties
When you purchase real estate as an investment or a business, it can be a big plus to receive commission from future sales. These commissions are called resale commissions or bulk sales.
Resale commissions can be negotiated into your original purchase contract with an existing real estate investor who sells you their property; however, these terms will depend on many factors (which are beyond the scope of this post).
When you sell that property yourself, it is also possible to earn commissions based on what your customer pays for your product. For example, if you sell someone a house and get them financing through a mortgage broker or lender that uses your financing services, then you could earn commission from both sides.
