The new year brings possible new tax reporting requirements for direct sales platform operators (“Direct Sellers”)!

These changes stem from amendments to the Income Tax Act (“ITA”) and mandate that digital platform operators throughout the online “gig” economy report income and certain other information about some of the sellers using their websites or apps to the Canada Revenue Agency (the “CRA”).  See our prior article for more technical information.

Those affected include certain Direct Sellers operating on a “buy-resale” model.  Filings for the 2024 year are due by January 31, 2025!

Which Direct Sellers Are Affected?

The new requirements generally apply to Direct Sellers operating on a buy-resale model, namely where products are sold to independent sales contractors (“ISC”) who then re-sell those products to their customers through a replicated website or app.  They do not appear to capture Direct Sellers exclusively using “sales-representative” models where customers purchase directly from the Direct Seller, and the ISC earns a commission for the service of arranging that sale.

Direct Sellers may be affected if they are either:

• Resident in Canada; or
• Resident outside Canada but have Canadian-resident ISCs.

Direct Sellers are “excluded platform operators” (and therefore not impacted) if, depending on their residency, they either:

• Do not have any ISCs in Canada or any “partner jurisdiction” (i.e., United Kingdom, New Zealand, etc.); or
• Can demonstrate that their platform does not allow sellers to derive a profit (i.e., its ISCs are only representatives).

What Must be Reported to CRA?

Affected Direct Sellers must report the following details about ISCs who are deemed “reportable sellers” to the CRA, generally on a quarterly basis:

• legal name;
• primary address;
• taxpayer identification number (“TIN”);
• date of birth (if applicable);
• business names & registration number (if applicable);
• financial account identifiers;
• reportable seller residency;
• total consideration paid and number of transactions; and
• fees, commissions or taxes withheld or charged by the Direct Seller.

Importantly, ISCs may be “excluded sellers” (i.e., excluded from reporting obligations) if they make less than 30 sales and less than $2,800 on sales in the calendar year.

Due Diligence

The new rules also include “due diligence” procedures for determining whether or not ISCs qualify as “reportable sellers”.  Direct Sellers must collect and verify certain pieces of information which depend in part on whether or not a government verification service is used.

More details on this topic are found in sections 283 to 287 of the ITA.

Takeaways

New ITA rules affecting digital platform operators across the “gig” economy appear likely to capture some Direct Sellers too!  Potentially affected Direct Sellers should get legal assistance to ensure they meet their obligations.

Want a PDF copy of this blog?