Canadian Shopify Merchants Beware: The Canada Revenue Agency Is Coming

Introduction – The CRA Wants Shopify to Identify All Canadian Merchants and Release their Sales Records

The Canada Revenue Agency wants to know whether Canadian e-commerce merchants using Shopify have been accurately reporting their sales. To that end, on April 14, 2023, the CRA requested that the Federal Court of Canada issue an order requiring the Canadian e-commerce platform Shopify to (1) identify all Canadian merchants using the platform and (2) release each Canadian merchant’s Shopify sales records for the last six years.

Shopify isn’t the first e-commerce platform that the CRA has compelled to disclose sales information for Canadian e-commerce merchants. About 17 years ago, the Canada Revenue Agency obtained a similar Federal Court order requiring eBay Canada to disclose the names, addresses, and sales for all Canadian eBay PowerSellers. The CRA’s treatment of Shopify also mirrors its treatment of the Canadian cryptocurrency exchange Coinsquare several years earlier. On March 19, 2021, the CRA obtained a Federal Court order requiring the Canadian cryptocurrency exchange Coinsquare to identify all Canadian customers holding cryptocurrency accounts with a value of $20,000 or more during the 2014-2020 period. Now attempting to obtain a similar order against Shopify, the Canada Revenue Agency aims to identify non-compliant Canadian e-commerce sellers in the same way that it identified non-compliant Canadian cryptocurrency traders.

What Does the CRA’s Federal-Court Application Mean for Canadian Shopify Merchants who Failed to Report Income?

As of the date of this article, Shopify has filed a notice of appearance, which indicates that Shopify intends to resist the CRA’s attempt to obtain Canadian-merchant information, and the parties have asked the Federal Court of Canada for directions concerning the subsequent procedural steps. In short, Shopify apparently intends to resist the CRA’s efforts, the extent to which Shopify will resist is unclear, and the parties have yet to have their day in court.

But if the Canada Revenue Agency’s application ultimately succeeds, the Federal Court will grant an order requiring Shopify to identify all Canadian merchants using its platform and release each Canadian merchant’s Shopify sales records for the last six years. The CRA’s tax auditors, or an expert automated-data-analysis application, will then compare the Shopify sales records with the business income that the Canadian merchants reported on their Canadian tax returns and with the revenue that merchants reported on their GST/HST returns. Those whose tax returns don’t reconcile with Shopify sales records will soon find themselves facing a CRA tax audit. Significant discrepancies may result in gross-negligence penalties and even criminal prosecution for tax evasion.

Pro Tax Tips – Voluntary Disclosures Program for Canadian Shopify Sellers with Unreported Sales

Canadian Shopify merchants who failed to report income have a limited window to qualify for relief under the CRA’s Voluntary Disclosures Program (VDP). If the VDP application qualifies, the CRA will renounce criminal prosecution and waive gross-negligence penalties (and may reduce interest).

A voluntary-disclosure application is time-sensitive, however. The CRA’s Voluntary Disclosures Program will reject an application—and thus deny any relief—unless the application is “voluntary.” This essentially means that the VDP must receive a Canadian Shopify merchant’s voluntary-disclosure application before the CRA contacts that specific merchant about the non-compliance that the merchant seeks to disclose. At the moment, the CRA’s Federal Court application by itself will not disqualify an affected Canadian Shopify merchant from qualifying for relief under the VDP. But if the taxpayer delays and allows the Canada Revenue Agency to identify the taxpayer’s unreported e-commerce sales, the opportunity for VDP relief is gone.

Our experienced Certified Specialist in Taxation Canadian tax lawyer has assisted numerous Canadian taxpayers, including eBay PowerSellers who were the subject of a previous court order, with correcting non-compliance involving e-commerce sales and other ventures. We can carefully plan and promptly prepare your voluntary-disclosure application. A properly prepared disclosure application not only increases the odds that the CRA’s Voluntary Disclosures Program will accept your disclosure but also lays the groundwork for a judicial-review application to the Federal Court should the CRA unfairly deny your disclosure.

To determine whether you qualify for the Voluntary Disclosures Program, schedule a confidential and privileged consultation with one of our expert Canadian tax lawyers. Solicitor-client privilege prevents the Canada Revenue Agency from learning about the legal advice that you received from your tax lawyer. Yet your communications with an accountant remain unprotected. So, if you seek tax advice but want to keep that information away from the CRA, you should first approach a Canadian tax lawyer.  If an accountant is needed, your Canadian tax lawyer can retain the accountant on your behalf and extend legal privilege.

Frequently Asked Questions

Question: I’ve heard that the CRA is attempting to obtain Canadian records from Shopify. Is that true? If so, why? What’s the worst that can happen to the Canadian sellers using Shopify?

Answer: It’s true. The Canada Revenue Agency wants to know whether Canadian e-commerce merchants using Shopify have been accurately reporting their sales. To that end, on April 14, 2023, the CRA requested that the Federal Court of Canada issue an order requiring the Canadian e-commerce platform Shopify to (1) identify all Canadian merchants using the platform and (2) release each Canadian merchant’s Shopify sales records for the last six years.

If the Canada Revenue Agency’s application ultimately succeeds, the Federal Court will grant an order requiring Shopify to identify all Canadian merchants using its platform and release each Canadian merchant’s Shopify sales records for the last six years. The CRA’s tax auditors will then compare the Shopify sales records with the business income that the Canadian merchants reported on their Canadian tax returns and with the revenue that merchants reported on their GST/HST returns. Those whose tax returns don’t reconcile with sales records will soon find themselves facing a CRA tax audit. Significant discrepancies may result in gross-negligence penalties and even criminal prosecution for tax evasion.

Question: I’m a Canadian who has made a lot of money by selling goods on Shopify, but I didn’t report any of it on my Canadian tax returns. What can I do?

Answer: You might qualify for relief under the Canada Revenue Agency’s Voluntary Disclosures Program (VDP). If your VDP application qualifies, the CRA will renounce criminal prosecution and waive gross-negligence penalties (and may reduce interest).

Question:  I’m a Canadian Shopify merchant who has failed to report my e-commerce sales on my Canadian tax returns. Will the CRA’s application to obtain Canadian-merchant records from Shopify disqualify me from gaining relief under the VDP?

Answer: The VDP will grant relief only if your voluntary-disclosure application satisfies various conditions. For example, the CRA’s Voluntary Disclosures Program will reject an application—and thus deny any relief—unless the application is “voluntary.” This essentially means that the VDP must receive a Canadian Shopify merchant’s voluntary-disclosure application before the CRA contacts that specific merchant about the non-compliance that the merchant seeks to disclose. At the moment, the CRA’s Federal Court application by itself will not disqualify an affected Canadian Shopify merchant from qualifying for relief under the VDP. But if the taxpayer delays and allows the Canada Revenue Agency to identify the taxpayer’s unreported e-commerce sales, the opportunity for VDP relief is gone. To determine whether you qualify for the Voluntary Disclosures Program, schedule a confidential and privileged consultation with one of our expert Canadian tax lawyers.

DISCLAIMER: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.