CRA Plans to Use PayPal to Find Businesses That Underreport Income

written on behalf of Feigenbaum Law

The Canada Revenue Agency (CRA) continues to crack down on businesses that are not reporting all their income and is seeking help from mobile payment companies, including PayPal.

Earlier this month, PayPal received a Federal Court Order requiring the company to disclose information to the CRA about PayPal Business account holders who have sent or received a payment through their accounts between January 1, 2014 and November 10, 2017. PayPal has 45 days from the date the court order was issued (November 10, 2017) to comply.

Information that Must be Disclosed

Under the terms of the court order, PayPal must provide the CRA with the following information:

• The full name of every individual or corporation that has a PayPal business account with a Canadian address;
• The date of birth of every individual with a PayPal business account;
• The business name (if applicable);
• The contact numbers of the individual or corporation holding the PayPal business account (if available);
• The full address of the individual or corporation holding the PayPal business account;
• The Social Insurance Number and/or Business Number of the corporation or individual holding the PayPal business account, if available.

In addition, PayPal must provide details about the transactions made by the account holders:

• The total number and value of received transactions for each calendar year between January 1, 2014 and November 10, 2017; and
• The total number and value of sent transactions for each calendar year between January 1, 2014 and November 10, 2017.

“One-Time Disclosure of Information to the CRA”

In an email to the Globe and Mail, PayPal said:

“…This is a one-time disclosure of information to the CRA… This is not an on-going request for information…The CRA regularly seeks court orders as part of its mandate under the Income Tax Act and the Excise Tax Act to compel organizations to disclose information related to an individual or business for tax reporting purposes. In the past eBay Canada in 2009 and Square Canada in 2016 received similar Federal Court orders to disclose certain customer information to the CRA.”

CRA spokesperson, Patrick Samson said:

“To better detect activity in the underground economy, the CRA has increased its use of information from third parties, especially in sectors where cash operations are frequent. The CRA has also considerably stepped up efforts to identify individuals and businesses that do not file tax returns and to settle their files.”

Previous Requests from the CRA

This is not the first time that the CRA has turned to third parties to obtain information about taxpayers.

In 2016, the CRA obtained a court order that compelled Square Canada Inc. to hand over all sales transaction data for all Canadian sellers who made more than $20,000 annually between 2012 and 2015, or during the first four months of 2016. Square had to provide the CRA with address and bank account details for any such users, as well as payroll data and other information.

In 2007, a similar court order required eBay Canada Ltd. to provide names, addresses, and contact information for high-volume eBay sellers. Although eBay initially resisted the order and fought it in court, they ultimately had to hand over the information requested.

What Will This Mean for Affected Account Holders?

Individuals affected by this most recent court order may be subject to audit, and depending on the findings of the audit, may be required to pay additional tax and/or penalties or interest. Taxpayers who have large unreported income in their PayPal business accounts may be subject to criminal prosecution.

Affected individuals can think about using the CRA’s Voluntary Disclosure Program to disclose any previously unreported income. However, in this case it remains to be seen whether the CRA would accept any such disclosure as being voluntary in light of the court order.

We will continue to follow developments in this regard. In the meantime, if you have questions about corporate tax planning, contact Mark Feigenbaum for tax planning advice and strategies on avoiding the pitfalls that can result from improper tax planning. We offer services to clients in the US, Canada and around the world. Contact us at mark@feigenbaumlaw.com, or call us at (416) 777-8433 or toll free at (877) 275-4792 to learn more about how we can help.