Taxman starts to crack down on eBay sellers

Friday, July 31st, 2009

$5 billion in undeclared online revenue, Ottawa says

Mike De Souza, with file from Fiona Anderson

The Canada Revenue Agency is planning to begin a wave of audits within weeks targeting Canadians who derive at least some of their income from regularly selling products on the online eBay marketplace website.

The agency warned on Thursday that it planned to launch the audits by the end of the summer after obtaining a list of high-volume eBay sellers (known as “PowerSellers“) along with their transaction records.

Federal Revenue Minister Jean-Pierre Blackburn says a legal process which allowed the government to obtain the list has opened the door for the taxman to go after information from other marketplace websites and crack down on up to $5 billion in undeclared revenues from people who do business online.

“This is certainly only the beginning of the process,” Blackburn told Canwest News Service. “We believe that a whole new market is opening [for the revenue agency].”

The government obtained the list of 5,000 individual members or companies and their online transactions on Nov. 7, 2008, following a lengthy legal battle that reviewed privacy issues as well as an appeal from eBay. The website unsuccessfully argued against disclosing the information on the grounds that it was stored on an electronic database outside Canada.

Blackburn said the government could not immediately use the information in November since there were still unresolved legal issues and a possibility of an appeal to the Supreme Court. But he said the government has since reached an agreement with eBay — described in court documents as “the world’s largest global online marketplace” — that will allow the revenue agency to use the information from the list.

It includes members who sold more than $1,000 US worth of products per month (or its equivalent in Canadian dollars) for any period of three consecutive months in 2004 and 2005.

He said that anyone with previously undisclosed revenues should voluntarily come forward immediately to avoid audits, penalties and fines.

While interest charges may apply, he said the agency can reach agreements to help people with massive tax bills manage the cost through a payment plan.

“Within a month we will start the audit process, one by one, to determine whether these people [on the eBay list] declared their revenues on their tax returns in 2004 and 2005,” he said. “If they haven’t done so, it’s certain that we will send them a new notice of assessment with penalties.”

Blackburn also said the court decision would open the door for the revenue agency to obtain transaction records from subsequent years.

The Canadian Taxpayers Federation said it disagreed with the government’s approach. The lobby group believes the government appears to presume that people doing business online are guilty of tax evasion.

Gary Petersen, owner of the Tale of the Whale art and antique store in Sooke, buys on eBay but doesn’t sell. He supports the CRA’s move to tax those who do sell. The other day he came across a seller who had more than 80 pages, about 1,500 items, for sale.

“People who do this for a living should be paying tax because tax is what pays for roads and schools and police and fire departments and everything,” Petersen said.

Chilliwack-based Antiques by Design sells some items through eBay. But co-owner Dennis Dargatz said that eBay providing information about them to the CRA “doesn’t bother us a bit.”

“We declare everything we sell as income, so it doesn’t matter to us,” Dargatz said. “We’re a real business, we’re not doing this as a sideline or for extra cash. So for us it has no effect whatsoever.”

Dargatz doubts the CRA will spend time going after someone who has sold half a dozen things through eBay over the past few years.

“But the people that are actively selling, sure that’s income and they should be declaring it as income,” he said.

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