Introduction: As per the CRA's request, Shopify must identify all Canadian merchants and make their sales records available
If Canadian e-commerce businesses have been utilizing Shopify, the Canada Revenue Agency is interested in finding out if they have been correctly reporting their sales. To that aim, on April 14, 2023, the CRA filed a request with the Federal Court of Canada to issue an order compelling the Canadian e-commerce platform Shopify to (1) identify all Canadian merchants using the platform and (2) make available the sales records for the last six years of Shopify for each and every Canadian merchant.
The CRA has not only required Shopify but other e-commerce platforms to provide sales data to Canadian e-commerce businesses. The names, addresses, and sales of all Canadian eBay Power Sellers were to be disclosed by eBay Canada, under a similar Federal Court order secured by the Canada Revenue Agency almost 17 years prior. Additionally, the way the CRA handled Canadian cryptocurrency exchange Coinsquare a few years ago is mirrored in how it handled Shopify. The Canadian cryptocurrency exchange Coinsquare was required by a Federal Court judgment issued by the CRA on March 19, 2021, to identify all Canadian clients who had cryptocurrency accounts valued at $20,000 or more between 2014 and 2020. The Canada Revenue Agency is currently trying to get a similar order against Shopify with the goal of identifying Canadian e-commerce sellers who are not in compliance in the same manner that it identified Canadian cryptocurrency traders who are not in compliance. Shopify is challenging the CRA court application.
What Impact Does the Federal-Court Application from the CRA Have On Canadian Shopify Merchants Who Did Not Report Their Income?
Shopify filed a notice of appearance indicating that it plans to thwart the CRA's efforts to gather information about Canadian merchants. The parties have also requested guidance from the Federal Court of Canada regarding the next steps in the procedural process.
If the application made by the Canada Revenue Agency is approved successfully, the Federal Court will issue an order compelling Shopify to provide the names of all Canadian retailers utilizing its platform as well as their individual sales data for the previous six years. Next, the revenue that merchants declared on their GST/HST returns and the company income that they recorded on their Canadian tax returns would be compared with the Shopify sales records by the CRA's tax auditors or by a professional automated data analysis technology. A CRA tax audit will soon be awaiting anyone whose tax filings and Shopify sales data don't match. Significant differences could lead to criminal prosecution for tax evasion as well as gross negligence penalties.
Pro Tax Tips: Voluntary Disclosures Program for Canadian Shopify Merchants with Undisclosed Transactions
Shopify merchants in Canada who neglected to disclose their income have a short window of opportunity to be eligible for relief under the Voluntary Disclosures Program (VDP) of the Canada Revenue Agency. If the VDP application is approved, the CRA will forgo criminal prosecution and forfeit fines for gross negligence (as well as potentially lowering interest).
However, a voluntary disclosure application must be submitted within a specific time frame. This basically means that before the CRA gets in touch with a particular Canadian Shopify merchant on the non-compliance the merchant wishes to reveal, the VDP must receive the merchant's voluntary-disclosure application. Currently, a Canadian Shopify merchant who is impacted by the CRA's Federal Court application will not automatically be ineligible for relief under the VDP. However, the chance for VDP relief disappears if the taxpayer waits and permits the Canada Revenue Agency to discover the taxpayer's unreported e-commerce purchases.
Our knowledgeable Certified Specialist in Taxation tax attorney has helped a lot of Canadian taxpayers with their non-compliance with e-commerce sales and other endeavors. Among them are eBay PowerSellers who were the focus of a prior court ruling. We are able to rapidly and meticulously prepare your application for voluntary disclosure. A well-prepared disclosure application not only improves your chances of having your disclosure accepted by the CRA's Voluntary Disclosures Program, but it also sets the stage for a potential judicial review application to be filed in federal court in the event that the CRA unjustly rejects your disclosure.
Speak with one of our knowledgeable Canadian tax lawyers to arrange a private, confidential consultation to find out if you qualify for the Voluntary Disclosures Program. The Canada Revenue Agency cannot access the legal advice you obtained from your tax counsel due to the doctrine of solicitor-client privilege. However, your correspondence with an accountant is unsecured. Therefore, you should speak with a Canadian tax lawyer first if you need tax assistance but wish to keep that information private from the CRA. In the event that you require an accountant, your Canadian tax lawyer can extend legal privilege and hire the accountant on your behalf.
Frequently Asked Questions
I have heard that the CRA is attempting to collect Canadian documents from Shopify. Is this true? If so, explain why. What are the worst-case scenarios for Canadian Shopify sellers?
It is accurate. If Canadian e-commerce businesses have been utilizing Shopify, the Canada Revenue Agency is interested in learning if they have been correctly reporting their sales. To that aim, on April 14, 2023, the CRA filed a request with the Federal Court of Canada to issue an order compelling the Canadian e-commerce platform Shopify to (1) identify all Canadian merchants using the platform and (2) make available the sales records for the last six years of Shopify for each and every Canadian merchant.
In the event that the Canada Revenue Agency's action is successful, the Federal Court will issue an order compelling Shopify to disclose the identities of all Canadian retailers utilizing its platform and to provide access to each retailer's Shopify sales data for the previous six years. The revenue that Canadian merchants reported on their GST/HST returns and the company income they declared on their Canadian tax returns would subsequently be compared by the CRA's tax auditors to the Shopify sales records. Tax returns that do not match sales data will shortly be the subject of a CRA tax audit for those individuals. Considerable disparities could lead to fines for severe negligence and possibly even criminal charges for tax evasion.
I'm a Canadian who has sold items on Shopify and made an adequate income, but I didn't disclose any of it on my tax returns home. What steps may I take?
Answer: Under the Voluntary Disclosures Program (VDP) of the Canada Revenue Agency, you may be eligible for relief. If your VDP application be approved, the CRA will forgo criminal action and forfeit fines for gross negligence (as well as perhaps lowering interest).
I am an e-commerce retailer on Shopify from Canada, and I have not disclosed my online sales on my tax filings in Canada. Can I no longer be eligible for relief under the VDP because of the CRA's application to Shopify for Canadian-merchant records?
If your voluntary-disclosure application meets certain requirements, the VDP will only provide relief. An application that is not "voluntary" will be rejected by the CRA's Voluntary Disclosures Program, for instance, and no relief will be granted. Essentially, this implies that before the CRA contacts a particular Canadian Shopify merchant on the non-compliance the merchant wishes to reveal, the VDP must receive the merchant's voluntary-disclosure application. Presently, a Canadian Shopify merchant who is impacted by the CRA's Federal Court application will not automatically be ineligible for relief under the VDP. That being said, the possibility for VDP relief goes away if the taxpayer waits and permits the Canada Revenue Agency to discover their unreported e-commerce purchases. Set up a private, confidential consultation with one of our knowledgeable tax lawyers in Toronto to find out if you qualify for the Voluntary Disclosures Program.
DISCLAIMER: All of the material in this article is general. It is only current as of the day it was posted. It might not be current as it has not been updated. It is not to be relied upon and does not provide legal advice. Each tax scenario is specific to its conditions and will not be the same as the examples given in the article. A Canadian tax lawyer should be consulted if you have any special legal questions.