Canada Revenue Agency has now announced that they expect to start auditing taxpayers based on information from eBay at the end of summer 2009. CRA recently won a case in the Federal Court of Canada requiring eBay Canada to provide the names of eBay sellers as well as their contact information and sales records.
What does this mean to you? Not much, unless you sell on eBay, and maybe not much even then. If you sell the occasional item on eBay, or even if you sell quite a few items, you may not be taxable on the sales. Selling on eBay is subject to the same rules as any other form of selling. If the sale would not be taxable if done at a garage sale or through the local buy and sell, it is not taxable just because it happens on eBay.
Generally, sales of items such as collectibles, bicycles, clothing and other personal use property do not result in any taxes owing if the sale price is under $1,000 – unless it is sold by a business. So, go ahead and sell your comic book collection on eBay, or buy and sell ski gear for your kids, or even that old clunker (ooops, valuable antique auto) in the garage. As long as the sales price doesn’t exceed the greater of your cost or $1,000 and the items are for your personal use, you won’t be taxable on the sale.
However, if you sell a lot of items on eBay, expect to talk to CRA about whether or not you are in business and should be reporting business income. CRA has been concerned for some years that power sellers on eBay are in business but are evading taxes. The recent court case is the end of a long process by CRA to obtain access to eBay records for audit purposes.
Sometimes the line between a hobby and a business can be difficult to draw. A business is defined as an activity undertaken for profit, while a hobby is an activity undertaken for personal enjoyment. Many businesses begin as hobbies, and the best businesses can be those that we enjoy. A hobby might be collecting stamps or coins or art, where you mostly buy items and sell the occasional inferior or duplicate item. This may lead into a business if you start to sell most of what you buy, even if you keep the best items for yourself.
If you are a power seller on eBay and you are NOT in business, you will still need to keep records good enough to show that you are not making a profit. If CRA has records of your sales, and you don’t have records showing how much you paid, you could end up paying taxes, plus penalties and interest. If you buy and sell items for personal use, keep records that will show this.
On the other hand, if you are in business but haven’t been reporting business income, now is the time to ‘fess up and pay what you owe. If you make a voluntary disclosure about your business activities before CRA contacts you, you can avoid penalties or prosecution.
If you are not sure what, if any, income tax effects your eBay activity will have, talk to your accountant today. Leaving it until CRA takes action may be both unpleasant and costly.