Shopify Merchants from Canada, Beware: The Canada Revenue Agency is on the Way

Identify Canadian Merchants and Release Their Sales Records: The CRA Tells Shopify – An Introduction

Canadian e-commerce merchants using Shopify are being watched by the Canada Revenue Agency to determine whether their sales reports are accurate. In pursuit of this objective, the CRA took action on April 14, 2023, by submitting a formal request to the Federal Court of Canada. to issue an order mandating the e-commerce giant, Shopify, to (1) identify all Canadian merchants operating on their platform, and (2) disclose the Shopify sales records of each Canadian merchant for the preceding six-year period.

Shopify is not the first e-commerce platform to be compelled by the Canada Revenue Agency (CRA) to disclose sales information pertaining to Canadian e-commerce merchants. Approximately 17 years ago, the CRA successfully obtained a comparable Federal Court order, compelling eBay Canada to disclose the names, addresses, and sales details of all Canadian eBay PowerSellers. The CRA’s approach towards Shopify bears resemblance to its handling of Coinsquare, a Canadian cryptocurrency exchange, a few years earlier. On March 19, 2021, the CRA acquired a Federal Court order, necessitating Coinsquare to identify all Canadian customers holding cryptocurrency accounts valued at $20,000 or more during the 2014-2020 timeframe. Seeking a similar order against Shopify, the CRA aims to identify non-compliant Canadian e-commerce sellers, mirroring its strategy for detecting non-compliant Canadian cryptocurrency traders.

Implications of the CRA’s Federal Court Application for Canadian Shopify Merchants Who Failed to Report Income

At the time of writing, Shopify has submitted a notice of appearance, signalling its intention to oppose the CRA’s request for Canadian-merchant information. Both parties have sought guidance from the Federal Court of Canada regarding the subsequent procedural measures. In essence, Shopify appears inclined to resist the CRA’s endeavours, although the extent of their resistance remains uncertain, and the parties have yet to present their arguments in court.

However, if the Canada Revenue Agency’s application proves successful, the Federal Court will issue an order mandating Shopify to disclose the identities of all Canadian merchants utilizing its platform, as well as their Shopify sales records from the past six years. Subsequently, the CRA’s tax auditors or a specialized automated data analysis application will compare these sales records with the business income declared by the Canadian merchants on their tax returns and the revenue reported on their GST/HST returns. Merchants whose tax filings do not align with the Shopify sales records will likely face a tax audit conducted by the CRA. In cases where significant discrepancies are identified, individuals may face penalties for gross negligence and, in severe instances, potential criminal prosecution for tax evasion.

Tax Pro Tips – Canadian Shopify Sellers with Unreported Sales have the Option of Voluntary Disclosures Program

Failure by Canadian Shopify merchants to report their income has a time-limited opportunity to seek relief through the Canada Revenue Agency’s Voluntary Disclosures Program (VDP). By qualifying for the VDP, merchants can potentially avoid criminal prosecution and have gross-negligence penalties waived (with the possibility of reduced interest).

Time is of the essence when it comes to voluntary-disclosure applications. The CRA’s Voluntary Disclosures Program will only accept applications that are “voluntary” and any application that fails to meet this requirement will be rejected, resulting in the denial of potential relief. To qualify, a Canadian Shopify merchant must submit his or her voluntary-disclosure application to the VDP before the CRA contacts that merchant regarding the specific non-compliance being disclosed. It is important to note that the CRA’s Federal Court application alone does not disqualify affected Canadian Shopify merchants from seeking VDP relief. However, if merchants delay and allow the CRA to discover their unreported e-commerce sales, the opportunity for VDP relief will be forfeited.

Our highly experienced Canadian tax lawyer, who is a Certified Specialist in Taxation, has provided valuable assistance to numerous Canadian taxpayers, including those who were eBay PowerSellers affected by a previous court order, in addressing non-compliance related to e-commerce sales and other business activities. We are well-equipped to meticulously plan and efficiently prepare your voluntary-disclosure application. By ensuring proper preparation, your application stands a greater chance of being accepted by the CRA’s Voluntary Disclosures Program. Additionally, a well-prepared disclosure application lays a solid foundation for a potential judicial-review application to the Federal Court if the CRA unfairly denies your disclosure.

To assess your eligibility for the Voluntary Disclosures Program, we recommend scheduling a confidential consultation with one of our experienced Canadian tax lawyers. This consultation benefits from solicitor-client privilege, safeguarding the legal advice you receive from disclosure to the Canada Revenue Agency (CRA). It’s important to note that communications with an accountant are not protected under solicitor-client privilege. If you require tax advice while ensuring confidentiality from the CRA, it is advisable to consult with a Canadian tax lawyer first. Should the involvement of an accountant be necessary, your top Canadian tax lawyer can engage the accountant’s services on your behalf, extending the protection of legal privilege to the accountant’s communications as well.  

Frequently Asked Questions (FAQs)

Is it true that the CRA is attempting to obtain Canadian records from Shopify? If so, why? What are the potential consequences for Canadian sellers using Shopify?

Yes, it is true. The Canada Revenue Agency (CRA) is seeking to obtain Canadian records from Shopify in order to ensure accurate reporting of sales by Canadian e-commerce merchants using the platform. To pursue this objective, on April 14, 2023, the CRA made a formal request to the Federal Court of Canada to issue an order mandating Shopify to (1) disclose the identities of all Canadian merchants operating on their platform and (2) provide the Shopify sales records of each Canadian merchant for the preceding six-year period.

In the event that the Canada Revenue Agency’s (CRA) application is successful, the Federal Court will issue an order mandating Shopify to disclose the identities of all Canadian merchants using its platform and release their Shopify sales records for the past six years. Subsequently, the CRA’s tax auditors will compare these sales records with the business income reported by the Canadian merchants on their tax returns, as well as the revenue reported on their GST/HST returns. Merchants whose tax returns do not align with the sales records will face a CRA tax audit. If significant discrepancies are identified, potential consequences may include gross-negligence penalties and, in more serious cases, criminal prosecution for tax evasion.

As a Canadian who has earned significant income from selling goods on Shopify without reporting it on my Canadian tax returns, what options do I have?

There is a possibility that you may be eligible for relief under the Canada Revenue Agency’s Voluntary Disclosures Program (VDP). If your application to the VDP meets the qualifying criteria, the CRA will refrain from pursuing criminal prosecution and waive gross-negligence penalties (and potentially reduce interest charges as well).

As a Canadian Shopify merchant who has not reported my e-commerce sales on my Canadian tax returns, may the CRA’s application to obtain Canadian-merchant records from Shopify prevent me from obtaining relief through the Voluntary Disclosures Program (VDP)?

In order to obtain relief through the Voluntary Disclosures Program (VDP), it is crucial that your voluntary-disclosure application fulfills certain requirements. For instance, the CRA’s VDP will reject an application and deny any relief unless it is “voluntary”. This means that the VDP application must be received by the CRA before they initiate contact regarding the specific non-compliance that you wish to disclose as a Canadian Shopify merchant. It is important to note that the CRA’s Federal Court application alone does not disqualify an affected Canadian Shopify merchant from qualifying for VDP relief. However, if you delay and allow the CRA to discover your unreported e-commerce sales, the opportunity for VDP relief will be lost. To determine your eligibility for the Voluntary Disclosures Program, book a schedule with one of our expert Canadian tax lawyers for a confidential and privileged consultation.

DISCLAIMER: The information provided in this article is general in nature. Only as of the posting date is it current. It hasn’t been updated and might not be relevant. It should not be relied upon because it does not provide legal advice. Every tax situation is different from the ones discussed in the article because of its unique circumstances. Consult a Canadian tax lawyer if you have specific legal questions.