Federal court rejects CRA's request for information on Canadian Shopify merchants

Globe and Mail

2 days ago

The federal court has dismissed the Canada Revenue Agency's request for information about e-commerce company Shopify Inc.'s Canadian merchants, blocking the tax agency's efforts to crack down on undeclared income earned online.
The CRA's request would have allowed the tax agency to scrutinize merchants' earnings, and spot those who did not remit the correct amount of goods and service tax.
The decision, rendered last Thursday, follows a two-year court battle and marks a departure from legal precedents where the tax agency sought to obtain third-party information through e-commerce providers.
The Canadian Income Tax Act requires the CRA to obtain a court order when asking a company to provide information about unnamed individuals, a legal tool known as the 'unnamed persons requirement,' or UPR.
While the CRA argued that it had identified an 'ascertainable' group of merchants, a precondition for obtaining the information, the federal court ruled that it had not successfully done so, therefore failing to meet the legal threshold.
'The Minister's inconsistent use and scoping of the terms employed in their request renders their proposed UPR ambiguous and unworkable,' said federal justice Guy Régimbald in a ruling dated May 29.
'The Court will not authorize a UPR that is unintelligible, incoherent, or otherwise beyond its understanding,' he added.
In 2023, CRA requested permission from a judge to require Shopify SHOP-T to hand information for each Shopify merchant operating in Canada over the six previous years from the date of court authorization of its request, within 60 days.
The objective was to verify that those merchants were obeying income tax laws. Those data points included names, social insurance numbers, banking information, and total transaction value for each of those years.
According to the affidavit of a CRA employee submitted as part of legal filings, the agency had 'concerns that Shopify's merchants may be participating in the underground economy and are not compliant with their Canadian tax obligations.'
The federal court also dismissed an application from the CRA to obtain and share Shopify merchant information with the Australian Tax Office, following a request by that country's government. It ordered that $45,000 of Shopify's costs be paid by the Government on each application.
If the federal court had ruled in CRA's favour, Shopify could have been required to hand over the data or risk face legal sanctions.
While Shopify, which provides e-commerce website tools, offers compliance features to help merchants calculate what they owe, the company itself is not responsible itself for remitting money to the government.