The CRA's Recent Inquiry Into Shopify: An Expert Perspective
As a tax expert and partner at the Toronto-based accounting firm, Tax Heroes, I, Mohammed Hassan, recently had the opportunity to give my insights to CTVNews.ca regarding the recent development between Shopify and the Canada Revenue Agency (CRA). This situation shines a light on the growing scrutiny that e-commerce platforms face from tax authorities worldwide. Here's my perspective on what's happening and what it means for Shopify merchants.
Unpacking the Situation
Recently, Shopify's CEO, Tobias Lutke, expressed his intention to "fight" against what he deemed an "overreach" by the CRA. The tax authority had requested six years of tax records from over 121,000 Canadian Shopify stores. While it's not unprecedented for the CRA to inquire into e-commerce platforms' records over tax evasion concerns (recall similar actions with Paypal and eBay), this situation still raises eyebrows.
The CRA's Stance
The CRA responded, stating it requires judicial authorization to demand third-party information about one or more "unnamed persons." The information obtained through Unnamed Persons Requirements (UPRs) helps the agency identify potentially non-compliant taxpayers. It also verifies if these taxpayers have appropriately reported their income and fulfilled their filing obligations.
The CRA assures that it takes the privacy and security of taxpayer information seriously. Any information gathered through the UPR process is strictly managed and protected according to the CRA's standard practices.
What's Behind the Inquiry
As of now, no specifics have been revealed as to why the CRA is inquiring into Shopify's records. The minister of national revenue filed a notice in April involving Shopify, citing sections of the Income Tax Act and Excise Tax Act. These acts require a Federal Court judge's approval to obtain documents through a third party.
As a tax professional, I understand that a judge would need to be satisfied that the group in question is "ascertainable" and the request is related to tax compliance. There are precedents where the CRA had asked for records from companies like Coinsquare, a Canadian cryptocurrency exchange.
Looking Ahead for Shopify and Its Merchants
While the CRA generally has a three-year statute of limitations for auditing, it can go back further if there's evidence of misrepresentation or gross negligence. This development could potentially be a step toward a potential audit of some Shopify merchants.
If the CRA obtains this information from Shopify, it could use it to verify its records, potentially auditing individuals based on this information and conducting various types of assessments.
Advice for Merchants
For compliant merchants, there's little to worry about. But for those who haven't reported all their earnings or haven't charged GST or HST when required, this could raise concerns. However, it's important to understand that this is a risk, as the interest and penalties are not waived if the CRA request of Shopify is considered an enforcement action.
For real-time tax advice and insights on these evolving tax issues, be sure to follow us on Twitter. We regularly share tax tips, updates on tax laws, and industry news that could impact your business or personal tax situation. You can also access the original CTV News article discussing the Shopify-CRA situation for more in-depth coverage.
At Tax Heroes, our commitment remains to guide and support our clients through these changing tax landscapes. If you're a Shopify merchant and have questions about your tax compliance or this ongoing issue, please don't hesitate to reach out. Our team of experienced professionals is here to help you navigate the complex world of taxes effectively. We're committed to keeping you informed and helping you make the best decisions for your financial future.
