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Federal tax officials are expanding a sweeping investigation into users of eBay Canada to determine whether more than 10,000 sellers have reported all the revenue they earned.

The Canada Revenue Agency launched the probe about two years ago and initially focused on all eBay Canada "PowerSellers" in 2004 and 2005, which totalled about 10,000 people. The agency recently told eBay Canada it plans to expand the investigation to include all PowerSellers in 2006 and 2007 as well, putting several thousand more people under review.

The PowerSeller program is a popular feature of eBay Canada. There are several PowerSeller levels and it takes about $3,000 in annual sales to qualify. PowerSellers receive various benefits from eBay Canada.

The CRA's investigation has been stymied by eBay Canada because it has refused to turn over information about PowerSellers. The company argued the information was stored on parent eBay Inc.'s computers in the United States and beyond the reach of the CRA. It also argued the CRA's probe was too broad and amounted to a "fishing expedition."

The dispute landed in court and last week the Federal Court of Appeal dismissed eBay's arguments. The court ruled the company has easy access to the records "with the click of a mouse," putting them within the bounds of the CRA.

It also upheld the CRA's power to conduct investigations of groups of people to ensure compliance with the Income Tax Act.

The court ordered eBay Canada to hand over the names, contact information and gross sales figures for the PowerSellers. The company said it will start turning over the material next week.

eBay Canada told users on its website yesterday that the ruling includes Canadian PowerSellers who sold goods through eBay sites in the United States and elsewhere. It also covers anyone who was a PowerSeller for even a few months.

Given the CRA's intention to expand the probe "we would like to remind sellers once again that they are responsible for ensuring that they are in compliance with all laws and regulations relating to their activities online," Scott Shipman, eBay Canada's senior counsel, said in the notice. "A change in PowerSeller status at this time will not alter our information disclosure requirement."

Andrew Sloss, eBay Canada's manager, said the company vigorously disagreed with the court ruling but it had run out of legal appeals.

"We're just alarmed by this," Mr. Sloss said in an interview yesterday. "I think everyone who values their privacy should find this alarming. This is a slippery slope. I mean, who will be the next people who will be the product of a government fishing expedition and have their privacy rights compromised?"

James Applegath, a PowerSeller who runs a T-shirt business in Toronto, said the CRA probe has startled many eBay sellers.

"It's kind of caused a little bit of a panic amongst everyone because it's not difficult really to achieve [PowerSeller status]" Mr. Applegath said.

Mr. Applegath is helping other PowerSellers with the CRA investigation and he said many non-business sellers don't have records going back to 2004.

"For the most part, it's a no brainer. If you are running a business, you've got to declare that revenue," he said. "The panic is from people who may not have been running a business and used eBay recreationally. Are these people in trouble? They want to know what information is being released about them."

A CRA spokeswoman declined to comment on the investigation.

Follow Paul Waldie on Twitter: @PwaldieGLOBEOpens in a new window

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