e-Commerce Alert and a Safe Haven from CRA Fines, Penalties and Prosecution
By: Stevan Novoselac and John Sorensen

Canadians who sell goods using eBay take note: the Canada Revenue Agency ("CRA") knows who you are and is planning to commence in-depth audits beginning towards the end of this summer. There is an opportunity now to avoid CRA fines, penalties and prosecution, but that window of opportunity is closing fast.

In late 2006, the CRA obtained a court order requiring eBay Canada Ltd. and eBay CS Vancouver Inc. (collectively, "eBay") to provide the CRA with the names, contact information and gross annual sales figures for eBay's so-called "Powersellers", for the purpose of verifying the Powersellers' tax compliance. The information sought by the CRA was needed to determine if the Powersellers had properly reported income earned from sales made on eBay.

eBay refused to provide the information CRA required, and resisted the CRA at the Federal Court, and on appeal to the Federal Court of Appeal. However, the CRA ultimately succeeded when, on November 7, 2008, the Federal Court of Appeal ruled in its favour. eBay was therefore required to provide the CRA with the names, contact information and sales records for all Canadian Powersellers.

In a recent press release, the CRA confirmed that it will be commencing in-depth audits, based on the information extracted from eBay, at the end of the summer of 2009, and that it will continue to vigorously enforce the provisions of tax legislation. The press release suggested that eBay sellers come forward as soon as possible, pursuant to the CRA's Voluntary Disclosure Program ("VDP"), to correct their tax reporting, to avoid fines, penalties and prosecution.

CRA's VDP allows taxpayers to voluntarily come forward to correct incomplete or inaccurate tax filings and/or to disclose previously unreported matters to the CRA, without threat of fines, penalties or criminal prosecution. Additionally, a lower rate of interest may apply to outstanding amounts that are more than three years past due. Where amounts are long overdue, the accrued interest, fines and penalties can easily exceed the amount of tax in issue. Therefore, it is generally recommended that taxpayers with outstanding tax issues avail themselves of the VDP as soon as possible. Taxpayers who have not reported income from e-Commerce, and who do not commence voluntary disclosures face a significant risk of audits, which may result in substantial fines and penalties.

If you require assistance in preparing and filing a voluntary disclosure under the CRA's VDP, please contact us.

Accessing Government Records
By: Stevan Novoselac and John Sorensen

Under certain circumstances, Canadians are obliged to provide books, records, documents and information to government agencies, such as the Canada Revenue Agency ("CRA"). This article briefly discusses the CRA's reciprocal obligations to provide confidential documents in its records to taxpayers and their advisors.

The easiest way to get copies of documents and information from the CRA is to simply ask. However, taxpayer information may be obtained by filing formal requests under either the Access to Information Act ("ATIA") or the Privacy Act. As a matter of practice, we will initiate a request under one of these two statutes for virtually every tax dispute matter we are retained to resolve. When a dispute arises between an organization or individual and the CRA, it is extremely helpful to have access to the relevant contents of the government's file as early as possible. The earlier and wider the disclosure the better, since the documents and information in the government's file allow for an evaluation of the strengths and weaknesses of the government's position and a formulation of strategy. We generally request copies of auditor's and appeals officer's reports and working papers, notes from meetings and conversations between CRA personnel and with third parties, information and documents provided by third parties and by the taxpayer, CRA internal memoranda and technical interpretations and so on. We usually find very helpful documents in the materials provided by the CRA, sometimes leading to the successful resolution of a tax dispute.

The CRA can also refuse to fulfill certain requests and/or delay fulfilling requests for documents and information in particular circumstances. If the CRA is unable to fulfill requests on a timely basis, the CRA may grant itself an extension of time to comply. Typically, the stated reason for the extension is that fulfilling the request would "unreasonably interfere" with the operation of a government agency. The rationale for refusing to disclose CRA documents is not always clear. For example, in Coastal Resources v. M.N.R., ¹ the taxpayer spent one and a half years trying to obtain a non-redacted document that was requested under the ATIA. On cross-examination, the CRA's delegate was unable to satisfactorily explain why the CRA refused to provide the requested document. As a result, the Federal Court held that the CRA's decision to refuse to release the non-redacted document was unreasonable and ordered the CRA to produce it.

Regardless of the occasional hurdle encountered in attempting to obtain access to the CRA's records pertaining to a client, we highly recommend making a formal request for CRA documents and information in virtually every case.

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1. 2009 FC 181.