Ebay and Canadian Power Sellers: The Taxman goes Browsing

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Posted By: Max Weder

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Taxman goes browsing on eBay
PAUL WALDIE

September 27, 2007

Canadians who sell a lot of stuff on eBay best beware - the taxman is watching.

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.

"The CRA is seeking to verify compliance with the obligations and duties under the Income Tax Act of certain Canadian taxpayers selling goods in an online marketplace," said an affidavit filed in court by Aziz Fazal, a Toronto tax officer who heads an audit group within the CRA that is leading the probe.

"In particular, the CRA seeks to verify the reporting of income by certain Canadian taxpayers selling goods via the eBay marketplace."

A lawyer representing eBay Canada declined to comment on the order, which was finalized last week.
The company argued in court that it did not have access to the records because eBay Canada is a subsidiary of eBay Inc. All of the information requested by the CRA is stored in computers outside Canada, eBay's lawyers said in court filings.

The company also argued that the CRA had not shown enough evidence to prove that it "was conducting a genuine and serious inquiry."

Mr. Justice Roger Hughes of the Federal Court of Canada ruled that eBay is legally obliged to turn over the information even if it is located elsewhere.

However, Judge Hughes reserved his decision on the issue of the validity of the CRA investigation. That will be dealt with in a future hearing.

"Good for [the CRA]," said Andrea Alacchi, a Montreal entrepreneur who launched an online business in 2004, called Distribution Online, after starting out by selling items on eBay. "It's unfair competition for people like us who run businesses fairly. If the other guy is not declaring his income, it's unfair competition."

Canadians spend about $5-billion online each year and eBay is by far the largest electronic marketplace, accounting for about a quarter of the total sales. The site was visited by nearly 11 million Canadians in August, according to company figures.

The CRA said in court filings that it is targeting people who qualified for eBay's PowerSeller program in 2004 and 2005.

Only top eBay sellers can qualify for the program, which provides benefits to members. Those benefits include prioritized customer service, special promotions and sales tips.

According to court filings, there are five PowerSeller levels ranging from Bronze, which involves $1,000 a month in sales, to Titanium, which is for people or companies that sell more than $150,000 a month.

The company does not release the number of PowerSellers but, according to court files, it keeps detailed computer records on each member.

The CRA defended its actions in court filings by arguing that it has the power to ensure tax laws are followed and it offered assurance the information will be kept confidential. "The Canadian income tax system is a self-assessing system. It's integrity is dependent on the Minister's broad power to verify compliance with the Act," the agency said in a filing.

A CRA spokeswoman declined to comment on the probe or whether it will be expanded to other websites.

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