The Federal Court has dismissed the Canada Revenue Agency’s request for information about e-commerce company Shopify Inc.’s Canadian merchants, blocking the CRA’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 services tax. But the court found that the tax agency had failed to establish an identifiable group of individuals whose data it was requesting.
The decision was rendered last Thursday, though neither Shopify SHOP-T nor the CRA commented publicly on it at the time. The two parties also did not immediately reply to requests for comment Sunday evening.
The ruling follows a two-year court battle and marks a departure from legal precedents that enabled the tax agency to obtain third-party information through e-commerce providers.
In 2023, the CRA requested permission from a judge to require Shopify to hand it information for each of the company’s merchants operating in Canada over the six previous years from the date of court authorization of its request, within 60 days.
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.”
Under the Canadian Income Tax Act, the CRA was required to obtain a court order for its request, as it was asking Shopify to provide information about unnamed individuals.
A precondition for such a request is that the CRA identify an “ascertainable” group of merchants whose data it is requesting. The Federal Court ruled that it had not successfully done so, saying its notion of a “Shopify owner” was inconsistent and too broad.
The Minister of National Revenue’s “inconsistent use and scoping of the terms employed in their request” therefore rendered its proposal “ambiguous and unworkable,” said Justice Guy Régimbald in last week’s ruling.
As the proposal failed to meet the legal threshold, the court dismissed the CRA’s request, calling it “unintelligible, incoherent, or otherwise beyond its understanding.”
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. It ordered that $45,000 of the company’s legal costs be paid by the Canadian government for each application.
If the Federal Court had ruled in CRA’s favour, Shopify could have been required to hand over the data or risk facing legal sanctions. The CRA was requesting numerous data points including names, social insurance numbers, banking information and total transaction value through the Shopify-hosted stores.
While Shopify, which provides e-commerce website tools, offers compliance features to help merchants calculate what they owe, the company itself is not responsible for remitting money to the government.