Tax Tip Thursday

There has been some interesting news this week regarding the CRA and the power they have over us!

It appears they are reaching into the coffers of information inside another large company to get information on small businesses. This time they are targeting Shopify, probably hoping to get information from them that would help them target Canadian small business owners who may not be reporting all of their income.

Shopify Records Release

Shopify CEO Tobias Lutke is ready to put up a “fight” over what he describes as an “overreach” by the Canada Revenue Agency (CRA). In a tweet, Lutke said the Ottawa-based e-commerce company was asked to hand over tax records of more than 121,000 Canadian stores from the last six years.

“I don’t particularly want a fight with the CRA (Canada’s tax authority)- but we got asked to backchannel them 6 years of records for all Canadian Shopify stores,”

“This feels like low-key overreach to me. We will fight this.”

Sounds like Tobias is going to try and stand up for the little guy, but the truth of the matter is that the CRA will probably be successful! They have successfully done this before to PayPal and eBay some years ago.

The CRA’s Side

In a statement Sunday, a spokesperson for the CRA said it must get judicial authorization before requiring that a third party provide information about one or more “unnamed persons.”

“The Canada Revenue Agency uses the information obtained through Unnamed Persons Requirements (UPRs) to identify taxpayers that may have been non-compliant, and verifies that they have appropriately reported their income and have satisfied their filing obligations under the acts administered by the CRA,” the statement said.

“The CRA takes the security and privacy of all taxpayer information very seriously. We collect information where it is lawful and directly related to compliance activities. Information collected through the UPR process is managed and protected according to CRA’s standard practices to protect the privacy of personal information. The confidentiality provisions of the acts we administer prevent the CRA from commenting or disclosing taxpayer information.”

While there are no details yet on why the CRA is inquiring into Shopify’s records, it’s not unheard of for the agency to go after e-commerce platforms over tax evasion concerns, as it did to PayPal. eBay was also subject to an inquiry over high-earning sellers on its website, requiring those earnings to be reported to the agency.

The government said the records were being sought to verify that Canadian merchants were obeying the Income Tax Act and the Excise Tax Act.

In a notice of application, it maintained that Shopify’s records include the identity, sales amounts, and other relevant account details of the merchants, but said “The minister does not know the identities of the relevant merchants.”

Court

All parties involved are asking for a one-day hearing on the matter to take place between Feb. 13 and March 17, 2024. Federal Court records show that the minister of national revenue filed a notice in April involving Shopify, citing sections of the Income Tax Act and Excise Tax Act that relate to obtaining authorization to acquire documents or information.

Both acts require approval from a Federal Court judge to obtain such documents through a third party — in this case, Shopify.

A judge would have to be satisfied that the group in question is “ascertainable” or can be identified by the CRA, meaning it isn’t just a random request, Hassan says, and that it is also related to tax compliance.

Along with the examples of PayPal and eBay, Hassan noted that the CRA had previously asked for records from the Canadian cryptocurrency exchange company CoinSquare. Both sides reached an agreement in March 2021.

He also notes that while there is generally a three-year statute of limitations when it comes to auditing someone, the CRA can go back further if evidence exists of misrepresentation or gross negligence.

Hassan added that the statement by Lutke is probably for reputational purposes to show that he is defending Shopify merchants.

“Most likely the court will issue that order and they (the CRA) will be able to get that,” he said.

What This Means for Merchants

They are asking for 6 years, which is unusual as the statute of limitation is 3 years unless there is evidence of misrepresentation or gross negligence. This would suggest to me that they are looking for something or someone specific.

It will likely be a step toward a potential audit of some merchants.

“They won’t have income information for a lot of the store merchants and once they get that information from Shopify, then they can use that information to check in with their records and then they can audit people based on that information and do different types of assessments,”

Merchants who are already compliant with their taxes should not have to worry. But this could be concerning for any who have not reported all of their earnings, or who have not charged GST or HST where they needed to.

Taxpayers who attempt to fix errors or omissions in their tax filings could try to get some interest or penalties waived through the Voluntary Disclosure Program. That said, interest and penalties won’t be waived if additional tax information is provided through an enforcement order. It is probably a good idea to apply anyway and do it quickly!

So, if you use Shopify or any other 3rd party e-commerce websites and you have NOT been claiming your income from those activities, you might want to reconsider.

Need Help?

No shame in needing help with this! Book an appointment with us today and we will help you go through all your records and make sure that any noncompliance gets rectified as quickly and painlessly as possible.

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.