The federal government says online income is taxable and has warned Internet entrepreneurs who use eBay and other web-based sales venues that they must pay up or face prosecution.
"Taxpayers should know that the tax laws that apply to traditional commerce apply in the same way to electronic commerce, like eBay selling," Revenue Minister Jean-Pierre Blackburn said in a statement Thursday.
"I strongly encourage eBay sellers and, for that matter, any taxpayer who has not already done so, to correct their tax affairs as soon as possible to avoid penalties or prosecution."
The tax agency says it will begin auditing eBay sellers at summer's end after receiving detailed information from the online sales outlet.
The CRA will continue to vigorously enforce the provisions of tax laws to ensure that all Canadians pay their taxes, thus ensuring a level playing field for taxpayers who comply with Canada's tax laws.
In a September 2007 decision, the Federal Court of Canada ordered eBay Canada Inc. to provide the Canada Revenue Agency with the names of its high-volume sellers, their contact information and their sales records.
Noting that its records are kept outside the country by its parent company, eBay appealed the decision. The appeal was rejected in April.
The tax man can now use personal information to determine if the sellers have duly reported their online income.
"If the CRA determines that an individual or a business did not comply with the tax laws, the CRA will take any necessary action," warns the release from Revenue Canada.
"In addition to paying any outstanding taxes plus interest, consequences may include penalties, as well as legal actions that could result in fines and other imposed sanctions."
Revenue Canada says it will not prosecute or penalize those who voluntarily correct or disclose tax information before an audit or other compliance action is initiated.
The so-called Voluntary Disclosures Program garnered attention when a federal inquiry learned in May that under provisions Revenue Canada has since abandoned, former prime minister Brian Mulroney paid taxes on only half the $225,000 he says he received from German-Canadian businessman Karlheinz Schreiber.
Mr. Mulroney declared the income six years after he was paid.
The agency says it will begin contacting eBay sellers "to ensure that they have filed all required returns and accurately represented the full scope of their business income.
In addition to paying any outstanding taxes plus interest, consequences may include penalties, as well as legal actions that could result in fines and other imposed sanctions.
"If necessary, it will conduct an in-depth audit to ensure that all taxpayers and businesses pay their taxes," the agency said Thursday.
"The CRA will continue to vigorously enforce the provisions of tax laws to ensure that all Canadians pay their taxes, thus ensuring a level playing field for taxpayers who comply with Canada's tax laws."
Canadians spend about $5-billion online a year. EBay is by far the largest electronic marketplace, accounting for about a quarter of total sales. The company says the site was visited by nearly 11 million Canadians last August.
Revenue Canada said in court filings it is targeting people who qualified for eBay's PowerSeller program in 2004 and 2005.
Only top eBay sellers qualify for the program and its benefits, including prioritized customer service, special promotions and sales tips.
Court documents say there are five PowerSeller levels ranging from Bronze, requiring $1,000 a month in sales, to Titanium, requiring sales of more than $150,000 a month.
The company does not release the number of PowerSellers but court files say it keeps detailed computer records on each member.
Revenue Canada defended its actions by arguing in court that it has the power to ensure tax laws are followed and it offered assurance the information will be kept confidential.
"The Canadian income tax system is a self-assessing system," the agency said in one of its filings. "Its integrity is dependent on the minister's broad power to verify compliance with the Act."Report Typo/Error