Shopify to fight CRA request for six years of merchant tax records: CEO

“We will fight this.”

Federal Court documents show the minister of national revenue began seeking the records from the Ottawa-based e-commerce business in April.

The government said the records were being sought in order to verify that Canadian merchants were obeying the Income Tax Act and the Excise Tax Act.

In a notice of application, it maintained that Shopify’s records include the identity, sales amounts and other relevant account details of the merchants, but said “the minister does not know the identities of the relevant merchants.”

All parties involved are asking for a one-day hearing on the matter to take place between Feb. 13 and March 17, 2024.

Shopify did not immediately respond to a request for comment.

Asked about what it is trying to ascertain from Shopify’s records, the CRA said it uses information obtained through “unnamed persons requirements to identify taxpayers that may have been non-compliant and verifies that they have appropriately reported their income and have satisfied their filing obligations.”

“The CRA must obtain judicial authorization before issuing a requirement to a third-party to get information about one or more unnamed persons,” spokeswoman Hannah Wardell said in an email.

Rick Watson, founder of RMW Commerce Consulting, said it’s common for authorities to issue such requests to major service providers and marketplaces, but the lengthy time period covered by the request to Shopify “does raise an eyebrow.”

Government requests to service providers carry low risks, but high rewards due to the numbers of merchants involved, he said in an email.

“While this is purely speculation, it is possible that several merchants were not found in compliance in the past, and the government thought there might be other similar merchants in this bucket, and hence the broad request.”

The request doesn’t necessarily mean Shopify is evading tax requirements, he said, but could stem from merchants often not being motivated to fully understand tax and reporting requirements until some negative event like a fine or enforcement action.

He saw Shopify’s efforts to go public about the matter as a public relations strategy meant to make the company appear as friendly to merchants.

However, he said, “any risk to Shopify is low and more than likely there is greater risk to an individual merchant from a tax liability point of view.”

The government’s request comes after Shopify laid off thousands of staff over the last two years, cutting 10% last summer and another 20% in May.

Lutke took responsibility for the first round of layoffs, admitting he wrongly estimated how much the Covid-19 pandemic would accelerate Shopify’s growth.

He positioned the second set of cuts as a way to help Shopify stop expending resources on “side quests,” and instead focus on its main goal: making commerce easier.

The additional layoffs were delivered after Shopify’s share price began to fall as consumers reverted to pre-pandemic shopping habits and tech valuations sank as investors became spooked by recession rumours.

Along with the cuts, Shopify has sold its logistics business to supply chain management firm Flexport, reduced the number of meetings staff have and retooled its approach to employment and compensation.

Shopify split workers into two career tracks — managers and crafters — with equivalent compensation levels and gave employees a “total rewards wallet” last year that allows them to choose between cash and stock options for their compensation.