CRA needs Shopify’s business information to verify tax compliance

The Canada Revenue Agency requires six years of data from Shopify on all of its Canada-based businesses to verify their tax compliance.

Shopify, a leading Canadian multinational e-commerce company, has more than 121,600 Canada-based merchants, of which 16,600 are in Toronto. The platform allows businesses to build an online store and sell services through a streamlined dashboard.

The e-commerce company provides a wealth of data on individual companies’ earnings, a gold mine for the CRA to see which companies have failed to file their income and excise taxes (taxes on certain goods) or are underreporting their income, experts say.

“From small to large businesses, everyone uses Shopify,” said James Rhodes, lead attorney at Taxation Lawyers. “Shopify has everything the CRA needs to monitor these companies. What was sold, when it was sold, their sales and turnover.”

It’s a more efficient auditing process, experts say, as opposed to searching for suppliers on the Shopify platform and reviewing them individually. This way, the CRA can access all relevant documents from thousands of companies and compare Shopify’s data with its own.

Shopify did not respond to the star’s questions in time for publication.

But on Friday night, Shopify CEO Tobias Lütke went public with the CRA’s request, posting on Twitter, “I don’t really want to argue with the CRA, but we were asked to give them six years worth of records for all Canadian Shopify stores.” return stores. This feels like low-key overreach to me. We will fight this.”

In April, the Secretary of State for Taxation — who oversees the CRA — filed a request in Federal Court asking Shopify to turn over the information of its “Canada-based merchants” to ensure they comply with the Income Tax Act and Accise Tax Act.

“Shopify maintains records of merchants’ identities, sales amounts, and other relevant account information,” the application says. “The group is identifiable and the identities of the relevant merchants are known to Shopify.”

The minister does not know the identities of the companies, he adds, and is seeking “court authorization” to require Shopify to provide information about Canadian companies.

“The Minister has the power to audit under the Revenue and Excise Act,” Rhodes said. “If they don’t know exactly what they’re looking for, they should get a court order to get the information needed for an audit.”

A hearing on the application has been requested for early 2024. If successful, the federal court will grant the minister an injunction.

In an emailed statement to the Star, the CRA said it uses the information obtained through Untitled Persons Requirements (UPRs) — which allows the agency to obtain information from an individual or a company about unknown third parties — to identify taxpayers who may be non-compliant, and verify that they have properly reported their income and reporting obligations.

“The CRA takes the security and privacy of all taxpayer information very seriously. We collect information where it is lawful and directly related to compliance activities,” the statement said. “The confidentiality provisions of the laws we enforce prevent the CRA from commenting or disclosing taxpayer information.”

The CRA has a history of issuing court orders to large corporations to fight tax evasion, says David Rotfleisch, tax attorney and founder of Taxpage.com.

Earlier, eBay and PayPal were targeted by the CRA to see if Canadian companies had declared all their earnings.

Getting an injunction against Shopify is “as close to a slam dunk as you’ll find,” Rotfleisch said, as the minister has the legal authority to oversee these companies.

Shopify could appeal the injunction based on the application’s requirements being too broad or the information difficult to obtain, he said, but it’s likely Shopify would lose because a court order addresses most of those concerns. transcends.

“Shopify can appeal to tell their customers that they challenged the injunction, but it’s not worth them spending any more time and money on it,” he added.

It’s unclear why the CRA is asking for six years’ worth of records, Rhodes said, but it coincides with Shopify’s 2017 announcement about integrating with Amazon — boosting companies’ potential profits.

Businesses must also keep records for a period of six years from the end of the last tax year to which they relate. “After that, the data can be destroyed,” he added.

The CRA’s tactic of going through federal court is a sensible way to obtain financial records from companies, Rotfleisch said, and will continue to be one used by the government.

“I’m surprised it took them this long to approach Shopify. It’s a smart way to get your hands on a bunch of data and tackle tax evasion.”

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