A federal court has ordered Shopify Inc. SHOP-T to retain data related to a group of merchants as part of a continuing case brought forth by the government to crack down on undeclared income earned online.
The data retention order follows a November appeal by the Canada Revenue Agency, as part of its case to verify that merchants operating stores hosted by the Ottawa-based e-commerce company are complying with tax law.
It’s the latest development in a two-and-a-half year court battle that has, so far, marked a departure from legal precedents that previously enabled the tax agency to obtain third-party information through e-commerce providers.
In June, the Federal Court dismissed the CRA’s request for six years’ worth of information about Shopify’s Canadian merchants, finding that the CRA’s request was overly broad.
The CRA appealed that decision on Nov. 13, claiming that the Federal Court made several errors in ruling against the request and acted unreasonably in refusing to exercise its discretion.
Federal Court rejects CRA’s request for information on Canadian Shopify merchants
In the appeal, which is currently pending before the court, the CRA repeated that the recent growth of online selling has made it more difficult to track the “underground economy,” and said it is concerned that merchants selling goods online using Shopify may not be complying with tax obligations.
After filing that appeal, the CRA also asked the Federal Court of Appeal to stop Shopify from deleting information related to inactive accounts while the parties wait for the appeal to be heard in court.
Shopify’s policy is to delete data after accounts have been inactive for two years. Shopify had opposed the data retention motion, arguing that the CRA did not meet the legal criteria for such an order and did not specify a time period for which the data should be maintained.
Although Federal Court of Appeal Justice Nathalie Goyette ultimately found that the retention order was in the public interest and met certain legal thresholds with certain amendments, she took issue with elements of the CRA’s process.
She noted that the CRA had delayed asking for a preservation order for almost two years “without explanation,” after Shopify disclosed its data deletion policy in legal submissions in early 2024. The CRA had then requested that the court expedite its decision on the order, she said.
As a result, Justice Goyette granted the preservation order without awarding the CRA costs, finding that “the Minister’s representations were unclear and not of much assistance to the Court.”
If the court sides with the CRA’s request for six years’ worth of data, the tax agency will be allowed to scrutinize certain Shopify merchants’ earnings and spot those who did not remit the correct amount of goods and services tax.
The initial dismissal by the federal court is a divergence from legal precedent. Since the rise of online e-commerce in recent years, the CRA has made similar requests for data from other online platforms and has been granted access to that data in several instances.