E-commerce company Shopify has won its Federal Court battle against the Canada Revenue Agency (CRA), which had demanded access to merchants’ earnings data en masse to verify compliance with Canadian tax obligations.
The CRA’s sweeping request for six years’ worth of data on Canadian merchants first emerged in 2023, after a judge authorized the agency to receive the information within 60 days of the court order. Shopify refused to comply.
“I don’t particularly want a fight with the CRA,” wrote Shopify CEO Tobi Lutke at the time. “But we got asked to backchannel them 6 years of records for all Canadian Shopify stores. This feels like low-key overreach to me. We will fight this.”
The CRA claimed it wanted to ensure that merchants were remitting the appropriate amount of goods and services tax.
The agency had “concerns that Shopify’s merchants may be participating in the underground economy and are not compliant with their Canadian tax obligations,” reads the affidavit of a CRA employee.
In its defence, Shopify noted that the company provides compliance features to help merchants tally what they owe but maintained that the company itself is not responsible for remitting that money to the government.
The court ruled on Thursday that the agency failed to establish an identifiable group of individuals for the data requested, bringing the two-year court battle to an end.
The court dismissed the CRA’s request on the basis that it failed to meet the legal threshold, saying that it was “unintelligible, incoherent, or otherwise beyond its understanding.”
The CRA was required to obtain a court order for its request under the Canadian Income Tax Act because it was asking for information about unnamed individuals.
However, if the agency is unable to identify an “ascertainable” group of merchants whose data it’s requesting, it fails to meet one of the preconditions of said request.
The Federal Court ruled that the CRA’s notion of a “Shopify owner” was too broad and created inconsistencies.
The agency requested numerous data points from Shopify, including names, banking information, social insurance numbers, and total transaction value through any online stores hosted by the company.
Justice Guy Régimbald said the agency’s “inconsistent use and scoping of the terms employed in their request” rendered its request “ambiguous and unworkable.”
Additionally, the Federal Court dismissed an application from the CRA to obtain and share Shopify merchant information with the Australian Tax Office, following a request from the Australian government.
The court ordered the Canadian government to pay $45,000 of Shopify’s legal costs for each application.
“CRA demanded 6 years of Canadian merchant data from us. This felt like blatant overreach,” wrote Lutke on Sunday. “We took them to court and last Friday Justice Régimbald agreed with us.”