In a recent news story, “Taxman goes browsing on Ebay“, the Globe and Mail reports that, “The Canada Revenue Agency has won a Federal Court order requiring eBay Canada Ltd. to turn over the names, addresses, phone numbers and e-mail addresses of all high-volume sellers on the popular website. The CRA wants to find out whether those individuals or companies are reporting the income they made from online sales in 2004 and 2005.”
It was only a matter of time until the Canada Revenue Agency (CRA) figured this one out (recall the physician’s adage,”When you hear hoofbeats in Texas, think horses, not zebras.”), an Ebay seller ticked off someone from CRA or CRA received a message on its tip line about someone living the high life based on an Ebay income, take your pick.
Ebay tried the classic argument about the books and records being outside Canada but that never works unless they are in a tax haven. The story also reports that, “The company also argued that the CRA had not shown enough evidence to prove that it “was conducting a genuine and serious inquiry.” In other words, Ebay alleged the other classic argument – CRA was merely on a “fishing expedition”. The judge of the Federal Court of Appeal ruled that Ebay was obliged to turn over the information, however, he reserved his decision on the “fishing expedition” question. I will be surprised if that argument is ultimately successful. Further, if Ebay does lose this argument, it will be curious to see if Ebay appeals the decision. While I can’t imagine it is the best public relations to be seen as protecting potential tax cheats, the sellers are responsible for their profits.
It is not unusual for CRA to go to third parties when they believe there is some underreporting of income, especially among a “class” of taxpayers. Because of a perceived high amount of non-compliance by contractors in the construction industry, CRA completed a similar investigation a number of years ago which resulted in new reporting requirements (basically tax slips) for payments to contractors.
The Income Tax Act gives CRA broad powers to inspect (without a warrant) not only a taxpayer’s records but also those of any other person who may have information that should be in the taxpayer’s records or relates to any amount owing by the taxpayer under the Act. If you ever have insomnia, take a look at Section 233.1 of the Income Tax Act. You will either go right to sleep or be scared out of your wits and have nightmares (if you are able to fall asleep).
So, if you are an Ebay powerseller and you have not reported your income, be prepared. While it is likely too late to make a voluntary disclosure, it still might be worth a try.
Filed under: CRA, Ebay, powersellers
