MLM/Direct Sales

MLM/Direct Sales are often one of the most misunderstood types of businesses when it comes to taxes. You would have run into several tax preparers who do not even consider this a legit business, and some who consider this a hobby and do not allow you to write off things you are allowed to deduct.

What is Direct Sales or MLM?

Generally, direct sales allow businesses to sell their products directly to consumers through commission-based sales representatives or independent sales contractors (ISCs), who, again, sell the products to other ISCs of the direct seller or purchasers.
BG Accounting and Business Solutions will help you do that with peace of mind. We are one of the few accounting firms in Ontario that has worked with the top MLM companies such as Isagenix, Amway, Primerica, and others for their direct selling businesses.

Who are Independent Sales Contractors or ISCs?

“Independent sales contractor” (ISC) should be the one who’s:

works independently; not an agent or an employee of a direct seller or a distributor.
licensed to purchase exclusive products from the direct seller or a distributor.
Resale exclusive products to other ISCs of the direct seller who do not hold products for reselling.
Cannot sell a direct seller's exclusive products (more than 50%) at a fixed place of business except at their personal place or home.

As a result, an independent sales contractor can sell exclusive direct seller products to other ISCs or purchasers.
A person must meet all of the requirements to be an ISC for the ACM; he cannot be one even if an established ISC refers to him as such.

What is the ACM?

The ACM is a process to simplify the operation of the GST/HST for ISCs, direct sellers, and distributors. However, the direct seller must apply to the CRA before utilizing the ACM process, either solely or in collaboration with other distributors, and must acquire approval from the CRA to get into the process.
Following approval, the approved direct seller or distributor, whichever is applicable, claims GST/HST from the ISC on the proposed retail price of the exclusive products purchased by the ISC, even if the ISC pays a lower price for the products. After the ACM’s approval, the ACM rules apply to all ISCs, regardless of their registration.

Do I have to register for GST/HST for my business?

The execution of the GST/HST can be simplified with the approval of direct-selling businesses.
Direct-selling businesses use the Network Sellers Method (NSM) to sell products to customers directly through sales representatives.
The alternate collection method (ACM) is used by direct-selling businesses to sell products to ISCs.
Therefore, to carry out direct selling business activities, you have to be an independent sales representative, or ISC, for GST and HST purposes.

GST/HST registration

Generally, when the total taxable revenues for the businesses exceed $30,000 over four consecutive calendar quarters, businesses tend to register for GST/HST.

However, for ISCs, the revenues from the following activities are not included in the calculation of the $30,000 amount as they skip GST/HST registration:

selling exclusive products.
selling sales aids to other ISCs, and
Bonus amounts.

The ISC is discharged from the registration of GST/HST where the only earnings are from these activities, even if they grossed over $30,000 in the year.

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