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PAGE 4 NEWS augusT 10/17, 2009 • Law Times Plans to audit online profits not so 'draconian' BY ROBERT TODD Law Times D espite swift public out- cry following a Canada Revenue Agency an- nouncement, lawyers say most eBay users will not be aff ected by plans to audit online profi ts. National Revenue Minister Jean-Pierre Blackburn recently made waves with the release of a statement "advising" Canadians that the income they make through online transactions is taxable. "Taxpayers should know that Get 2 years (80 issues) of information packed issues for only $175.50 Save 35% This offer expires: September 15, 2009 Subscription Special! Summer Make the time for Law Times and keep up with all the developments in Ontario's legal scene. Now, you can save 35 percent off the regular price when you take advantage of our special two-year-rate! Subscribe today and get: • A 2-year subscription to Law Times (That's 80 "must-read" issues, delivering news, features and analysis by some of the province's most trusted legal writers and columnists)... $175.50 — That's a 35% savings! • Unlimited access to the Law Times digital edition and to our digital edition archives...FREE • Canadian Legal Newswire, a weekly e-newsletter from the editors of Law Times and Canadian Lawyer delivered to your inbox every week...FREE the tax laws that apply to tradi- tional commerce apply in the same way to electronic com- merce, like eBay selling," said Blackburn. "I strongly encour- age eBay sellers, and for that matter, any taxpayer who has not already done so, to correct their tax aff airs as soon as possible to avoid penalties or prosecution." Th e announcement follows a Federal Court decision last year forcing eBay Canada to give the CRA the names, contact infor- mation, and sales records of sell- ers on the online marketplace. Th e statement went on to note that the CRA will begin the audits at the end of the sum- mer, and then get in touch with sellers to make sure they fi led ac- curate returns. "In-depth" audits may follow, said the CRA. However, the agency went on to note that, under its "voluntary disclosure program," taxpayers who correct information them- selves and make full disclosure before the CRA starts an audit will not be penalized. Bill Innes, a tax litigator with Fraser Milner Casgrain LLP, is call- ing on the public and media to step back and consider the broader im- plications of the announcement. "It's not as dramatic or as dra- q YES! 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L4G 3S9 Tel: (905) 727-0077 Fax: (905) 841-4357 conian as it seems," he says. "If people are just basically conduct- ing a yard sale over eBay — the same way you would in your ga- rage or driveway — that's not go- ing to generate taxable income." He notes the "personal use property" concept in the Income Tax Act. It generally relates to capital property that has been used personally, and off ers a $1,000 adjusted cost base. For example, says Innes, if you have a chair that you sell in a garage sale for $800, it is not taxable even if you only paid $20 for it. "So probably, the vast majority of things that are sold over eBay would fall within this category of personal use property," he says. Innes points out the caveat of SubAd_LT_July13/20_09.indd 1 7/22/09 4:51:55 PM "set," which means that an item sold as a set is grouped together and the $1,000 adjusted cost base is applied. "You can't sell each of the When it comes to IP in Canada, We're Well Read Ridout & Maybee LLP: Editors of the Canadian Patent Reporter it all starts somewhere www.ridoutmaybee.com chairs for $1,000, and the table for $1,000, and claim that there was no tax payable," says Innes. Th e main exception that is ap- plicable, he says, relates to indi- viduals engaged in the business of selling online, in which case items being sold are considered invento- ry, rather than capital property. In that case, the personal use prop- erty category does not apply and profi ts are calculated as usual. "Th e vast bulk of people sell- ing over eBay wouldn't be aff ect- ed by the inventory concept," he says. "Obviously the 'power sell- ers' . . . they clearly are engaged in a business; they clearly are selling inventory, so you compute their profi t in the same way as if they had a store on Bloor Street." Innes suggests, admittedly anecdotally, that most eBay us- ers fall within the category of "garage sale" sellers. "Th e key is to not unnecessar- ily scare people when in fact the 'If people are just basically con- ducting a yard sale over eBay — the same way you would in your garage or driveway — that's not going to generate taxable income,' says Bill Innes. bulk of them aren't going to be aff ected by this policy one way or the other," says Innes. David Robertson, a tax part- ner at Fasken Martineau Du- Moulin LLP, says, "I'd love to come off and say, 'You know, it's dreadful — how dare the CRA go after them.' But the reality is they're within their rights." He notes that the agency has only gone after people who have sold at volumes that constitute a true business. Th e CRA, in a sense, is being kind by announc- ing its intentions and noting the voluntary disclosure program, says Robertson. "If a person goes ahead and does a voluntary disclosure, they're going to avoid all of the prosecu- tion, they're going to avoid all of the penalties — they'll still have to pay interest if they did owe tax," he says. "But they're giving people an opportunity." Robertson believes the CRA has taken a gentler stance toward taxation of eBay profi ts due to public relations concerns. "As soon as the decision came out, there's lots of people who will feel, 'How come they're go- ing after us and they're not going after those who are being more aggressive,'" he says. Th is route also leads to less work for the CRA, he says. "It's a lot easier to have some- one come forward voluntarily and give you all of the informa- tion, than it is to have to go and send them audit letters and pur- sue them. Th at takes a lot of re- sources and manpower," he says. While the focus currently is on eBay, Robertson suggests that the CRA will gradually deal with similar taxation issues on profi ts earned by users of other online forums, such as the craigslist.org classifi ed web site. "Anyone who off ers a third- party forum for which people to sell through" could be targeted, he says. LT Ridout_LT_Feb9-16_09.indd 1 www.lawtimesnews.com 2/5/09 10:52:55 AM

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