In a September 18, 2007 ruling, Justice Roger Hughes of the Federal Court of Canada affirmed that the Canada Revenue Agency (CRA) has the right to examine records on Canadians who generate monthly sales of more than US$1,000 through the online marketplace on eBay, also known as 'PowerSellers.'

The judgment was a review of a November 6, 2006 order against eBay Canada Limited and eBay CS Vancouver Inc. requiring that they provide information to the Minister of National Revenue about the PowerSellers. The CRA sought information — including names, mailing and billing addresses, phone numbers, e-mail addresses and sales figures, in its investigation of whether individuals were reporting the income they had generated from sales in 2004 and 2005.

eBay Canada and eBay Vancouver contested the order, claiming they did not own or possess in Canada any information regarding these sellers. Specifically, the Canadian eBay entities argued that all information related to users' sales transactions was stored electronically on computer servers located in the US, and was owned and under the control of eBay Inc., a US corporation and the ultimate parent company.

The key issue in this case was whether Section 231.2 of the Income Tax Act permits an order requiring a Canadian resident to provide information to which it has access in Canada, but that is stored in data facilities owned by another party outside of Canada.

Though Justice Hughes agreed that this information is not 'owned' or controlled by eBay Canada, he found that eBay Canada has access to this information and, more importantly, accesses and uses it in the course of its business operations in Canada. The location of the servers is irrelevant. In today's world, electronic information "cannot truly be said to 'reside' in only one place or be 'owned' by only one person. The reality is that the information is readily and instantaneously available to those within the group of eBay entities in a variety of places."

It should be noted that this case is continuing. The issue of whether the CRA has provided sufficient evidence to demonstrate it is carrying out a "genuine and serious" inquiry is still to be addressed.

McCarthy Tétrault Notes:

As this case may require businesses to provide customer information to CRA in certain instances, it could have important implications for businesses and their customers. Information concerning Canadian clients that can be accessed and used by an online commercial enterprise in Canada appears to be fair game regardless of where the information is stored or who asserts ownership over it.

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