eBay Seller Audits

CRA to Audit EBay Canada Sellers in Search for Unreported Income

EBay Canada recently received a court-order from the CRA to release account information and sales data of Canadian residents who meet the following conditions:

  • Sales of more than $20,000 and at least 24 sales transactions in any of the calendar years 2006, 2007 or 2008, (irrespective of membership in eBay’s PowerSeller program); OR
  • Sales of more than $100,000 in any of the calendar years 2006, 2007 or 2008, regardless of the number of sales transactions.

If you are an EBay Seller who meets these sales thresholds, then you can expect eBay to release the following information to the Canada Revenue Agency: full name, user id, mailing address, billing address, telephone number, fax number, email address, and the selling prices (high bids) of the items.

If you fall into this category AND you have reported all EBay generated income to the CRA then you have nothing to worry about.

But, if you have not reported all of your EBay income and/or you have not collected and remitted the appropriate taxes to the Canadian government, then you should act quickly in order to avoid penalties, interest and even criminal prosecution.

 

Voluntary Disclosure Program

If the CRA has not commenced an audit on you as an EBay Seller, then you should contact a tax accountant who can help you apply under the voluntary disclosure program to bring your taxes up to date. You don’t need a costly tax lawyer to assist you with this. You can use this program to avoid severe penalties, prosecution and interest charges.

The main key to benefiting from the voluntary disclousre program is thatyou must contact the CRA BEFORE they contact you.

Our tax accountants in our office specialize in doing voluntary disclosure for our clients, many of who are EBay Sellers.

If you would like to set up a consultation with our office please call us at 905.474.2442. Alternatively, you may also fill out our online request form

If your name is on the list of EBay Sellers that was handed over to the CRA and you have unreported income, your time is running out before the CRA will contact you.

 

Information you need to File Voluntary Disclosure

Note all this information is not needed for our first meeting. It is helpful, but not mandatory. The key is to file the disclosure first,  then obtain the information within the 90 days period.   The information provided in the initial correspondence with CRA can be amended any time during the 90 day period.

Name,  social insurance number and date of birth of each member of the family.  If the business is a partnership or a corporation, I will need the names of the principals of the partnership or the shareholders of the corporation along with their SIN numbers.

Need to know for the family when the last personal tax returns were filed.  Please bring to the accountant the notice of assessments.  If this information cannot be obtained easily do not worry because the information can be obtained from CRA at the time of disclosure.  If tax returns were filed up to date, bring in copies of those tax returns.

When was the Ebay business started?  If the business includes sales that are not from EBay,  I will need to know when those sales started. Ebay sales should be confirmed prior to the first meeting.

Is the business a sole proprietorship, partnership or corporation?  If the Ebay business is incorporated, a payroll account may have to be created retroactively.

If the business is incorporated, I will need a copy of the articles of incorporation,  Receiver General business number and  Ontario corporate tax number.  If financial statements and corporation tax returns were filed without the Ebay income, then I will need copies of those financial statements and corporation tax returns.  If  the Ebay seller filed their personal tax returns as a sole proprietorship or a partnership,  I will need to see the individual T1 tax returns.

If the taxpayer is a GST registrant,  I will need a copy of  all returns filed and documentation with CRA.   The GST returns will have to be amended. If the information is lost, do not worry because the data can be obtained from CRA on the date of disclosure.  Try to determine Canadian and export sales.  The taxpayer may have to retroactively register for GST if they are not a registrant.

What products are being sold on EBay?

After the money is transferred from PayPal, what bank accounts were the proceeds transferred to?  Please ensure that you have copies of personal and business bank statements during the period of the business along with cancelled cheques.

Are there records to support expenses in order to earn the income? The seller may also be selling on-line and have incurred additional expenses in order to earn the income.  The business could consist of both Ebay and other sales.  One should obtain professional advice before claiming any of the expenses.  The voluntary disclosure should be completed before the expenses are accumulated.  Once the voluntary disclosure is sent to CRA,  the taxpayer is immediately protected and then has 90 days to complete the tax returns and provide full disclosure to CRA. The following is a list of some of the expenses:

  • Purchases of product
  • Office supplies
  • Long distance at home charges
  • Internet charges
  • Cellular phone charges
  • Ebay and Paypal commissions
  • Bank charges
  • Advertising expenses
  • Shipping and courier charges
  • Bad debts
  • Interest on long term debt
  • Equipment rentals
  • Insurance
  • Legal fees
  • Professional dues
  • Rent for office space
  • Occupancy costs for home
  • Travel
  • Conventions
  • Meals & entertainment
  • Vehicle Gas
  • Vehicle Repairs
  • Vehicle lease agreement
  • Vehicle parking
  • Vehicle License
  • If vehicle owned will need a copy of the  purchase agreement
  • Office equipment
  • Computer equipment.