Most of PayPal’s 6.4 million active Canadian account holders are individuals, but they do have about 250,000 active merchant accounts, including retailers of various sizes. The company stressed that this was a one-time request from the CRA and not an ongoing disclosure of information. As well as contact information about business account holders who sent or received payments in the specified period, PayPal is obligated to disclose the total number and value of those transactions.

What does this mean for you and your clients?

• Affected taxpayers can expect to be audited and may be assessed additional tax, penalties and interest on any undisclosed income for the years 2014 to 2016.

• There may also be GST/HST implications if a business account holder has been operating under the radar on that front.
• Because this information is being disclosed under a court order, the CRA Voluntary Disclosure rules may not apply. This could mean no potential relief from penalties and interest assessed, and could even result in criminal prosecution.
• The VDP is changing effective January 1, 2018, limiting access to interest and penalty relief for repeat offenders – those who fail to file and report income properly for multiple years or act only because of a CRA-initiated campaign.  It’s therefore important to amend returns immediately and before the end of 2017.
• Taxpayers will need to report income transactions for 2017 forward when filing this year’s return in the spring.

It’s no secret that the CRA is turning over every rock and stone in its crackdown on unreported income and tax avoidance. This federal court order is the most recent in a series that included Square Canada (2016) and eBay Canada (2009). While the technology used by these payment processing companies makes life easier for businesses, and for small business in particular, the CRA alleges that they are contributing to the underground economy and they are going after any unreported transactions.

The Globe and Mail reported that in an e-mailed statement, CRA spokesperson Patrick Samson said, “The underground economy harms businesses, consumers and the Canadian tax base. The CRA has adopted measures to encourage tax compliance, protect the fairness and integrity of the tax system, and maintain equal opportunities for businesses and individuals. It also examines sectors where underground economy activities are most common, such as payment processing, and is taking the necessary measures.”

The CRA is serious about collecting every unreported tax dollar they can. If you or your clients use payment processing systems such as PayPal, or participate in the shared economy (think Uber, Airbnb or VRBO), be aware that these technologically-enabled areas of the new economy are coming under increased scrutiny and enforcement.

If you were not aware that you needed to report income received via PayPal, or you were hoping to fly under CRA’s radar by using this method, you will need to get ahead of this issue before year-end or risk the possibility of serious penalties for gross negligence. You should seek the help of a credentialed tax professional such as a DFA – Tax Services Specialist as soon as possible.

Additional educational resources: T1 Professional Tax Preparation – Proprietorships, T2 Tax Preparation for Small Business, Bookkeeping for Small Businesses

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