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.