The Federal Court of Appeal has given the taxman approval to collect the names and sales figures for eBay’s top national sellers.
Eager Canadians spend roughly $5 billion online a year and eBay gobbles up a quarter of that, making it the largest electronic marketplace in the country. So-called PowerSellers are the cream of the eBay crop. At the lowest level, bronze, they rake in $1,000 a month in sales. At the top end, titanium, it is more than $150,000 a month.
The Canada Revenue Agency (CRA) wants their share of that money, which is why they went to court to force eBay to reveal the names of its roughly 10,000 PowerSellers in Canada.
The online auctioneer “has taken the garage sale and for some, turned it into a lucrative way to earn a living,” said Colleen Gibb, a partner with Gibb Widdis Chartered Accountants in Ancaster, Ont.
“The CRA wants to ensure that these individuals, who are actually running a business on eBay,” are reporting “the income earned on their tax returns.”
The Federal Court of Appeal found the CRA is entitled to know how much PowerSellers have earned, although eBay had tried, unsuccessfully, to argue that because the information was stored in a U.S. database, the CRA should not have access to it.
In an earlier decision, the Federal Court of Canada found that if eBay Canada has access to and uses information respecting PowerSellers stored by the parent company in the U.S., then the CRA should have the same right of access.
“The situation may be different if the information never had been used in Canada,” said Justice Roger Hughes.
The appeal court found that there was no reason to grant a stay while eBay appealed Hughes’ decision.
Some of the information sought relates to the 2004 taxation year, and it may be assumed that most tax returns for that year will become statute barred in 2008 under s. 152(4) of the Income Tax Act,” Justice Karen Sharlow stated in her decision. “Some of those returns may already be statute barred, and with each day there is a risk that others will become statute barred.
“I would also note that the minister’s interest in fulfilling his mandate to determine whether PowerSellers have met their statutory obligations coincides with the public interest in the integrity of the Canadian income tax system,” she added. “In the circumstances of this case, that is a consideration that outweighs any interest eBay Canada may have in not disclosing information about PowerSellers.”
While eBay argued that it would suffer irreparable harm if the information on its top sellers was released, it was an argument the court of appeal did not buy.
“The relevant question is whether eBay Canada would suffer irreparable harm from the disclosure, which first requires a determination that there will be some harm,” said Sharlow. “The answer to that question depends on what the minister is likely to do with the information if it is disclosed.
“It would appear that the minister intends to use the information to retrieve and review the 2004 and 2005 income tax returns of the PowerSellers whose identities are disclosed,” she noted. “I anticipate that the minister would then make whatever inquiries may be required to determine whether the PowerSellers have unreported income from their eBay sales, and if so he would reassess them accordingly ... The record contains no evidence that any steps the minister may take to verify the PowerSellers’ compliance with the Income Tax Act, or to assess any PowerSellers who may not have complied, will cause any harm to eBay Canada, much less harm that is irreparable.”
The speed with which the CRA sought to get the information from eBay and pursued the issue through the courts is noteworthy, said Beverly Gilbert, a chartered accountant with Borden Ladner Gervais LLP in Calgary. “We can see that the CRA is going after non-compliance and particularly targeting the Internet.”
According to Gibb, “This should be taken as a strong reminder from the CRA that any taxpayer whose level of selling on eBay is reaching that of a business needs to be reporting all of its income on its tax returns.
“For any taxpayer that has not done this in the past,” she added, “they may wish to consider making a voluntary disclosure of the net income generated from eBay or other Internet sales that they may have forgotten to report.”
And accountants should encourage them to do so.
The court’s ruling also reaches beyond Canada’s borders. “Foreign parent companies or subsidiaries will want to cut themselves off from their Canadian business subsidiaries in order to prevent Canadian government access to their records through their Canadian branch operation,” noted David Debenham, a certified management accountant and a partner with Lang Michener LLP in Ottawa.
“Their suppliers and customers,” he added, “may prefer to do business with their foreign competitors.”
“Accountants in public practice need to stay abreast of these types of cases,” said Gibb. “They know their clients’ business and need to protect their clients from tax problems by ensuring they are complying with the tax rules.
“The eBay case illustrates that just because the servers are not physically located in Canada and are not legally owned by a resident of Canada the information can still be obtained by CRA,” she added.
“Accountants, as the guardians of sensitive financial information, will be in the eye of the coming hurricane as the lines between national taxation systems become blurred due to e-commerce,” warned Debenham.
In addition, various tax authorities will “seek to circumvent treaty restrictions on cross-border sharing of tax information by using domestic access to foreign computer servers to broaden the tax net, as well as catch leakage of tax revenue by domestic tax evaders.
“Tax information planning,” he added, “will become part of the tax planning exercise in the very near future.”
“The CRA has this pre-conception that there is abuse,” said Gilbert. “The only way they can determine that is by going in and reviewing ... transactions.”
http://www.thebottomlinenews.ca/index.php?section=article&articleid=322
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Eager Canadians spend roughly $5 billion online a year and eBay gobbles up a quarter of that, making it the largest electronic marketplace in the country. So-called PowerSellers are the cream of the eBay crop. At the lowest level, bronze, they rake in $1,000 a month in sales. At the top end, titanium, it is more than $150,000 a month.
The Canada Revenue Agency (CRA) wants their share of that money, which is why they went to court to force eBay to reveal the names of its roughly 10,000 PowerSellers in Canada.
The online auctioneer “has taken the garage sale and for some, turned it into a lucrative way to earn a living,” said Colleen Gibb, a partner with Gibb Widdis Chartered Accountants in Ancaster, Ont.
“The CRA wants to ensure that these individuals, who are actually running a business on eBay,” are reporting “the income earned on their tax returns.”
The Federal Court of Appeal found the CRA is entitled to know how much PowerSellers have earned, although eBay had tried, unsuccessfully, to argue that because the information was stored in a U.S. database, the CRA should not have access to it.
In an earlier decision, the Federal Court of Canada found that if eBay Canada has access to and uses information respecting PowerSellers stored by the parent company in the U.S., then the CRA should have the same right of access.
“The situation may be different if the information never had been used in Canada,” said Justice Roger Hughes.
The appeal court found that there was no reason to grant a stay while eBay appealed Hughes’ decision.
Some of the information sought relates to the 2004 taxation year, and it may be assumed that most tax returns for that year will become statute barred in 2008 under s. 152(4) of the Income Tax Act,” Justice Karen Sharlow stated in her decision. “Some of those returns may already be statute barred, and with each day there is a risk that others will become statute barred.
“I would also note that the minister’s interest in fulfilling his mandate to determine whether PowerSellers have met their statutory obligations coincides with the public interest in the integrity of the Canadian income tax system,” she added. “In the circumstances of this case, that is a consideration that outweighs any interest eBay Canada may have in not disclosing information about PowerSellers.”
While eBay argued that it would suffer irreparable harm if the information on its top sellers was released, it was an argument the court of appeal did not buy.
“The relevant question is whether eBay Canada would suffer irreparable harm from the disclosure, which first requires a determination that there will be some harm,” said Sharlow. “The answer to that question depends on what the minister is likely to do with the information if it is disclosed.
“It would appear that the minister intends to use the information to retrieve and review the 2004 and 2005 income tax returns of the PowerSellers whose identities are disclosed,” she noted. “I anticipate that the minister would then make whatever inquiries may be required to determine whether the PowerSellers have unreported income from their eBay sales, and if so he would reassess them accordingly ... The record contains no evidence that any steps the minister may take to verify the PowerSellers’ compliance with the Income Tax Act, or to assess any PowerSellers who may not have complied, will cause any harm to eBay Canada, much less harm that is irreparable.”
The speed with which the CRA sought to get the information from eBay and pursued the issue through the courts is noteworthy, said Beverly Gilbert, a chartered accountant with Borden Ladner Gervais LLP in Calgary. “We can see that the CRA is going after non-compliance and particularly targeting the Internet.”
According to Gibb, “This should be taken as a strong reminder from the CRA that any taxpayer whose level of selling on eBay is reaching that of a business needs to be reporting all of its income on its tax returns.
“For any taxpayer that has not done this in the past,” she added, “they may wish to consider making a voluntary disclosure of the net income generated from eBay or other Internet sales that they may have forgotten to report.”
And accountants should encourage them to do so.
The court’s ruling also reaches beyond Canada’s borders. “Foreign parent companies or subsidiaries will want to cut themselves off from their Canadian business subsidiaries in order to prevent Canadian government access to their records through their Canadian branch operation,” noted David Debenham, a certified management accountant and a partner with Lang Michener LLP in Ottawa.
“Their suppliers and customers,” he added, “may prefer to do business with their foreign competitors.”
“Accountants in public practice need to stay abreast of these types of cases,” said Gibb. “They know their clients’ business and need to protect their clients from tax problems by ensuring they are complying with the tax rules.
“The eBay case illustrates that just because the servers are not physically located in Canada and are not legally owned by a resident of Canada the information can still be obtained by CRA,” she added.
“Accountants, as the guardians of sensitive financial information, will be in the eye of the coming hurricane as the lines between national taxation systems become blurred due to e-commerce,” warned Debenham.
In addition, various tax authorities will “seek to circumvent treaty restrictions on cross-border sharing of tax information by using domestic access to foreign computer servers to broaden the tax net, as well as catch leakage of tax revenue by domestic tax evaders.
“Tax information planning,” he added, “will become part of the tax planning exercise in the very near future.”
“The CRA has this pre-conception that there is abuse,” said Gilbert. “The only way they can determine that is by going in and reviewing ... transactions.”
http://www.thebottomlinenews.ca/index.php?section=article&articleid=322
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The article is inaccurate because to be a Bronze power seller you HAVE to sell 100 items
A minor point but this wasn't the case in 2004/05.
A minor point but this wasn't the case in 2004/05.
The dollar number is not that relevant to the first screening.
Revenue Canada will match names of PowerSellers to their tax returns and see if ANY business income has been declared.
Then, they'll get to work.
Obviously, anyone who was a PowerSeller and did NOT declare any income can expect a phone call from a tax auditor.
eBay is only a venue. The tax department will not assume any amounts until they have audited. Odds are PowerSellers NOT declaring profit from eBay transactions may very well be hiding other sources of income from other venues. .
Revenue Canada will match names of PowerSellers to their tax returns and see if ANY business income has been declared.
Then, they'll get to work.
Obviously, anyone who was a PowerSeller and did NOT declare any income can expect a phone call from a tax auditor.
eBay is only a venue. The tax department will not assume any amounts until they have audited. Odds are PowerSellers NOT declaring profit from eBay transactions may very well be hiding other sources of income from other venues. .
The information is available in Canada from eBay.ca from their Toronto office.
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"But Revenue Canada is criminalizing us (eBay sellers)"
????
Let's not get carried away with the word "criminal".
Revenue Canada is simply doing its job. Nobody is charge of any crime. Sellers who have been properly reporting their business income (from eBay and/or elsewhere) have nothing to worry.
Once they have the information, they will match it to their records to first screen those who have not reported any business income.
Then,.... we all know how it goes from there.
"permission to be exempt from Privacy Act "
?????
Where in the Privacy Act does it state Revenue Canada cannot ask information about Canadian taxpayers? .
????
Let's not get carried away with the word "criminal".
Revenue Canada is simply doing its job. Nobody is charge of any crime. Sellers who have been properly reporting their business income (from eBay and/or elsewhere) have nothing to worry.
Once they have the information, they will match it to their records to first screen those who have not reported any business income.
Then,.... we all know how it goes from there.
"permission to be exempt from Privacy Act "
?????
Where in the Privacy Act does it state Revenue Canada cannot ask information about Canadian taxpayers? .
"that your responsibility to report income"
Absolutely correct. Canadian laws require Canadians to report their worldwide income. .
Absolutely correct. Canadian laws require Canadians to report their worldwide income. .
"you seem to be pretty naive "
You may have missed the post a while back where I confirmed having worked previously for the Tax Department. 😞
I also worked for a CA firm preparing income tax returns for small businesses.
Naive? Maybe, maybe not. .
You may have missed the post a while back where I confirmed having worked previously for the Tax Department. 😞
I also worked for a CA firm preparing income tax returns for small businesses.
Naive? Maybe, maybe not. .
"giving RC advance info ... simplifies taxman job."
That is exactly what it is.
Precedent? For eBay maybe but in general ... not really. Revenue Canada regularly issues request for information about Canadian taxpayers. .
That is exactly what it is.
Precedent? For eBay maybe but in general ... not really. Revenue Canada regularly issues request for information about Canadian taxpayers. .
