Audit Proofing: CRA Investigates eBay “PowerSellers”

The Canada Revenue Agency is scrutinizing eBay "PowerSellers", those who sell more than $3,000 a year on the site, to determine if they are reporting the full amount of revenues earned from the activities. Federal tax officials are expanding their review to users of eBay Canada to determine whether more than 10,000 sellers have included these revenues when they filed their income tax returns. The probe was launched approximately two years ago by the Canada Revenue Agency and initially focused on all eBay Canada PowerSellers in 2004 and 2005. The agency recently told eBay Canada it plans to expand the investigation to include all PowerSellers in 2006 and 2007 as well, putting several thousand more people under review.

The CRA's investigation hit roadblocks with eBay Canada because they were allegedly refusing to turn over information about PowerSellers. Accordingly to eBay Canada officials, the information was stored on parent eBay Inc.'s computers in the U.S. and were therefore not within the CRA's jurisdiction.  They also felt the investigation was too broad and could be viewed as a "fishing expedition."

 

The Federal Court of Appeal dismissed eBay's arguments once the case was before them. The court ruled that e-Bay Canada has access to the records "with the click of a mouse," therefore putting them within the CRA's reach.  PowerSellers personal information such as names, addresses and gross sales revenues was ordered to be provided to the CRA, and the company advised it would comply with the decision.

 

Many of the PowerSellers affected by the court's decision feel the CRA's review is unfair as the sales on e-Bay Canada's site weren't run as a business, and the records they are requesting are not available. 

The lesson in all this should be to keep your business records in order, as you never know when the tax man will come knocking at your door.

 

For more information on audit proofing your affairs and knowing the compliance requirements for both business and personal tax, subscribe to The Knowledge Bureau's online tax reference for taxpayers, financial advisors and their clients: EverGreen Explanatory Notes.