Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Web-Based Sellers Warned About Compliance with Canadian Laws

The Canada Revenue Agency (CRA) has announced plans to start auditing high-volume sellers on eBay (and other web-based sellers, such as Craigslist, Kijiji) at the end of the summer to ensure they pay their fair share of income taxes. The CRA is giving fair warning so that persons (individuals and businesses) that are high-volume sellers on the Internet can make voluntary disclosures relating to past unreported sales and can get their documents and reporting processes in order for future sales.

Revenue Minister Jean-Pierre Blackburn said in a statement released on July 30, 2009:

"Taxpayers should know that the tax laws that apply to traditional commerce apply in the same way to electronic commerce, like eBay selling ..."

"I strongly encourage eBay sellers and, for that matter, any taxpayer who has not already done so, to correct their tax affairs as soon as possible to avoid penalties or prosecution."

For a copy of the Minister's Statement, please go to the following link - http://www.cra-arc.gc.ca/nwsrm/rlss/2009/m07/nr090730-eng.html

However, announcement only comments on income tax and fail to discuss, goods and services tax (GST), harmonized sales tax (HST), provincial sales tax and export controls. The CRA enforces GST and HST compliance and communicates regularly with provincial counterparts about provincial sales tax compliance.

Export control issues relating to Internet sales is a new issue that is gaining some attention in the United States. Earlier in the month, Chinese national Chi Tong Kuok of Macau, was arrested in Atlanta and subsequently indicted for conspiring to violate US export law. He had been under investigation since 2006 for using multiple Chinese and Japanese aliases to allegedly acquire US military radio and satellite equipment using eBay and other Internet-based sales sites. Kuok exploited the Internet in a very creative fashion, which has raised additional compliance red flags for government officials.

What the Canadian Minister of Revenue's announcement and the Kuok case highlight is that Powersellers and other sellers who make sales using web-based opportunities to reach a larger audience need to be aware of Canada's legal requirements and comply. If they do not take the steps to comply with Canadian law, they may face prosecution and/or large fines.

For information about the CRA voluntary disclosure program, please go to the following link - http://www.cra-arc.gc.ca/voluntarydisclosures/index.html

If you require assistance in filing a voluntary disclosure (with the potential benefit of having the CRA agree to waive penalties), please contact Cyndee Todgham Cherniak at 416-307-4168.

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