Shopify CEO Tobias Lutke is ready to put up a “fight” over what he describes as an “overreach” by the Canada Revenue Agency (CRA).
In a tweet, Lutke said the Ottawa-based e-commerce company was asked to hand over tax records of more than 121,000 Canadian stores from the last six years.
“I don’t particularly want a fight with the CRA (Canada’s tax authority)- but we got asked to backchannel them 6 years of records for all Canadian Shopify stores,” Lutke tweeted on Friday.
“This feels like low-key overreach to me. We will fight this.”
CTVNews.ca has reached out to Shopify but did not receive a comment in time for publication Saturday.
In a statement Sunday, a spokesperson for the CRA said it must obtain judicial authorization before requiring that a third party provide information about one or more “unnamed persons.”
“The Canada Revenue Agency uses the information obtained through Unnamed Persons Requirements (UPRs) to identify taxpayers that may have been non-compliant, and verifies that they have correctly reported their income and have satisfied their filing obligations under the acts administered by the CRA, ” the statement said.
“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. Information collected through the UPR process is managed and protected according to CRA’s standard practices to protect the privacy of personal information. The confidentiality provisions of the acts we administer prevent the CRA from commenting or disclosing taxpayer information.”
While there are no details yet on why the CRA is inquiring into Shopify’s records, it’s not unheard of for the agency to go after e-commerce platforms over tax evasion concerns, like it did to Paypal. eBay was also subject to an inquiry over high-earning sellers on its website, requiring those earnings to be reported to the agency.
Federal Court records show that the minister of national revenue filed a notice in April involving Shopify, citing sections of the Income Tax Act and Excise Tax Act that relate to obtaining authorization to acquire documents or information.
Both acts require approval from a Federal Court judge in order to obtain such documents through a third party, in this case Shopify.
“It’s pretty clear that the CRA or the minister of national revenue will actually meet that requirement,” Mohammed Hassan, a chartered professional accountant and partner at the Toronto-based accounting firm Tax Heroes, told CTVNews.ca in a phone interview Sunday.
A judge would have to be satisfied that the group in question is “ascertainable” or can be identified by the CRA, meaning it isn’t just a random request, Hassan says, and that is also related to tax compliance.
Along with the examples of PayPal and eBay, Hassan noted that the CRA had previously asked for records from the Canadian cryptocurrency exchange company Coinsquare. Both sides reached an agreement in March 2021.
He also notes that while there is generally a three-year statute of limitations when it comes to auditing someone, the CRA can go back further if evidence exists of misrepresentation or gross negligence.
Hassan added that the statement by Lutke is probably for reputational purposes to show that he is defending Shopify merchants.
“Most likely the court will issue that order and they (the CRA) will be able to get that,” he said.
The news comes as Shopify reported it would reduce its workforce by 20 per cent after 1,000 employees were laid off last summer. The company’s first quarter earnings report, released on May 4, also stated that the company would sell its merchant’s tool, Shopify Logistics, to supply chain management company Flexaport.
The report revealed that Shopify earned US$68 million in the first quarter of the year ending on March 31, 2023. Revenue also rose 25 per cent to US$1.5 billion from the previous year.
WHAT THIS MEANS FOR MERCHANTS
Hassan said this request by the CRA could be a step toward a potential audit of some merchants.
“They won’t have income information for a lot of the store merchants and once they get that information from Shopify, then they can use that information to check in with their records and then they can audit people based on that information and do different types of assessments,” he said.
Merchants who are already compliant with their taxes should not have to worry. But this could be concerning for anyone who has not reported all of their earnings, or who has not charged GST or HST where they need to, Hassan says.
Taxpayers who attempt to fix errors or omissions in their tax filings could try to get some interest or penalties waved through the Voluntary Disclosure Program.
Although interest and penalties won’t be waived if additional tax information is provided through an enforcement order, Hassan says it is probably a good idea to apply anyway.
With files from the Canadian Press