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It’s Tax Season – eBay Sellers Take Note

March 6, 2011

With the deadline to file tax paperwork here in Canada fast approaching, I thought this might be an appropriate time to revisit a piece that I wrote back in 2009 for an online trading card forum website that I used to contribute articles to. 

The article deals with the Canada Revenue Agency’s (CRA) move to crack down on unreported income from e-commerce sources such as eBay.  Obviously there is a very Canadian slant to the information, so readers from elsewhere in the world should refer to their own government’s policies regarding this issue.

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Posted August 26, 2009

Many sports card collectors buy and sell on eBay on a regular basis, with many of those doing so as a purely hobby level activity.  eBay serves as something of a virtual garage sale, allowing sellers to easily rid themselves of unwanted items while building a base of funds that can be used for items that are wanted.

The ability to use eBay as a means of converting unwanted cards into cash that can then be used to purchase other items is invaluable to many collectors.  Some are able to do this with a great deal of success, generating significant enough sales to build their collection with little to no impact on their regular income.  

For collectors who use eBay strictly to convert unwanted cards into cash and then use that cash for cards they do want or need, it may never have been a consideration to report this income.  There is a chance that all of that is about to change.

The Issue for eBay Sellers

On July 30, the Canada Revenue Agency (CRA) issued a press release in which Jean-Pierre Blackburn, Minister of National Revenue and Minister of State, reminded Canadian taxpayers “the tax laws that apply to traditional commerce apply in the same way to electronic commerce, like eBay selling”. 

The minister went on to state that he encourages all Canadians engaged in e-commerce activities like selling on eBay to “correct their tax affairs as soon as possible to avoid penalties or prosecution.”

In the release, the agency also informs taxpayers that eBay Canada recently provided the CRA with the names, contact information, and sales records of sellers.  This means that the agency now has access to information necessary to investigate, and potentially pursue penalties and prosecution of, Canadian eBay sellers that they deem to have been in violation of tax laws.

The CRA is planning to begin its review of the records provided by eBay Canada later this summer, meaning sellers have a relatively limited amount of time to determine how they need to react to this news.

Relax, You May Not be a Target!

For those of you who are concerned about being at risk of investigation by the CRA, there is a chance that you won’t actually be affected.  A pair of accountants familiar with this topic provided very similar advice to one another when contacted about the appropriate next steps for eBay Canada sellers. 

The major point that each emphasized is that it is very likely the CRA will target sellers who make significant income from their sales, but who do not claim those sales as income; namely, members who qualify as PowerSellers.   

Each also pointed out that it is likely that for sellers who use eBay strictly as a hobby, the ‘businesses’ those sellers are running would actually operate at a loss once the costs of operating the endeavour are added to the equation. 

Expenses related to the equipment, space, technology, and inventory replenishment required to operate would actually eliminate any income earned.   Therefore, it is likely that the CRA would focus their attention primarily on sellers who truly profit from their sales.

A third point that was raised relates to something known as Personal Use Property.  If the adjusted cost base (the cost of the property plus any expenses to acquire it) and the proceeds of the sale is $1,000 or less, there is not a capital gain.  According to the accountants contacted, this is to avoid having certain items – such as items sold at a garage sale – being claimed on taxpayers’ returns.

What if I Still Think I’m in Trouble?

Should you still feel that you are at risk, there is a way for you to rectify your tax situation without the potential of penalty or prosecution.  Through its Voluntary Disclosures Program (VDP), the CRA allows taxpayers to correct their tax filings while limiting their risk of serious repercussions.

By submitting the necessary paperwork and supporting documentation to the CRA, and having that disclosure approved following a review by the agency, taxpayers would only be required to pay the balance of the taxes owed to the government, plus interest.  They would not be subject to further punishment for filing incorrect information.

What Do I Do Now?

Based on the Minister’s comments in his recent announcement, it is clear that his agency believes – and likely now has the facts to support – that many people who are using eBay to sell their items have either inadvertently not been claiming their sales as income, or worse, have knowingly withheld the information from the CRA.

So what should you do to make sure you’re not at risk? 

First, contact eBay Canada to determine if your information was provided to the CRA.  In a response to an e-mail sent to eBay to inquire what information had been provided to the CRA, the Customer Support Agent stated that “only the sales information for members who held PowerSeller status at some point during the years 2004 and 2005” was released and that all affected members had been informed. 

Should any further information be released, all affected members will again be contacted by eBay Canada.  With that said, it might also be prudent to contact an accountant and get their thoughts and advice, if only for further reassurance.  If those steps have been taken and you are not at risk of investigation, great! 

If you are at risk, however, then you need to take action.  Should you fit the criteria, utilizing the option of the VDP is certainly something to seriously consider.   Keep in mind though; you only get one use of the program, so your future sales will need to be carefully recorded.

Ultimately, for some eBay sellers it may prove beneficial to explore the possibility of formally registering as a business. 

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I hope this article was as informative for you to read as it was for me to track down information about and write back when it was first posted.

In closing off today’s post, I would like to remind you that the information referenced above was collected over eighteen months ago and there may have been updates to policies and protocols that were in place at that time that I am not aware of.  If you are at all concerned that you may be at risk, please do not take this article as gospel.  Contact a qualified professional and have them review your individual case.

Until Wednesday, all the best in your collecting pursuits!

Ryan

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