3 days ago
Shopify court ruling may set new legal bar for merchant data demands after CRA rejection
The Federal Court's rejection of the Canada Revenue Agency's bid to compel Shopify Inc. SHOP-T to hand over merchant data is likely to set a new legal bar for such demands, lawyers say, curbing the agency's ability to make sweeping requests for information about unnamed taxpayers from private companies.
Last Thursday, the Federal Court dismissed the CRA's request for a court order to obtain six years' worth of vendor data from Shopify, which hosts online stores.
The court ruled that the CRA did not pass the legal test for requesting information about Shopify merchants whose names it did not know: that this group be 'ascertainable,' or clearly identifiable.
'It's confirming that there's a real requirement for the CRA to carefully craft the scope of their request, or the court is not going to accept it,' said tax lawyer Simon Thang. 'They are not willing to just rubber stamp it.'
Federal Court rejects CRA's request for information on Canadian Shopify merchants
Since the rise of online e-commerce in recent years, the CRA has made similar requests for data from other online platforms, which act as intermediaries and store data about individuals, to ensure Canadian-domiciled businesses are following the law and remitting the correct amount of tax.
The CRA said in legal filings it had concerns that some Shopify merchants might have been participating in the 'underground economy' and were not tax compliant.
By holding the CRA to a very high standard for clarity and precision, the courts have set a potential limit on the agency's ability to make sweeping asks for data from third parties when it does not have a name, Mr. Thang said.
The CRA can compel information about named individuals without a court order, but this typically takes longer and requires more resources than asking for information wholesale.
Tax lawyer Jack Millar said this will prevent the CRA from conducting 'fishing expeditions' for information. He called it a 'welcome departure' from prior cases, such as the CRA's requests for information from eBay and Hydro-Québec, in which it had greater success in securing mass data disclosures.
Third-party platforms such as Shopify increasingly hold vast amounts of financial information about their customers, making them an attractive data source for the agency.
'It's a lesson to the CRA in the future that they have to do their homework better in defining the group that they're after,' he said.
The case underscores the delicate balance between the CRA's mandate to ensure tax compliance and the privacy of individuals and businesses whose information it is seeking.
While Justice Guy Régimbald said the court's ability to consider privacy in its decision was limited, he disagreed with Shopify's view that the court should use its discretion to block the request on privacy grounds, saying that in the tax context, there is a very low expectation of privacy for companies' relevant business records.
The CRA could choose to refine its request to meet the stricter standards that the court outlined. This is what it did in the case of Hydro-Québec after an initial rejection by the court on similar grounds.
But Mr. Thang said that process could take years and, by that point, the CRA would have lost access to certain information as statutory time limits pass.
The CRA also has the option to appeal the court's decision. If it chooses to do so, it has a 30-day deadline to give notice.
Shopify founder Tobi Lütke said on X Monday that the CRA's demand for data was an example of 'blatant overreach.'
In a statement, CRA spokesperson Sylvie Branch said that the agency is aware of the Federal Court's decision on Shopify and is currently analyzing the case details and associated information.
The Federal Court also on Thursday dismissed an application from the CRA to obtain and share Shopify merchant information with the Australian Tax Office, after a request by that country's government. The court ruled that the CRA does not have the authority to request and then remit data about Canadian taxpayers to foreign governments.
