It's amazing what you can find on eBay, which claims to be the world's largest online marketplace.

While it's easy to shop on eBay, the Canada Revenue Agency will be making it harder for some eBay sellers to avoid reporting profit on their sales.

The CRA won their court battle to force eBay to provide information on high volume sellers in late 2008. Consequently, eBay released the following information for sellers with PowerSeller status to the CRA for the 2004 and 2005 calendar years: Name, e-mail and mailing address and gross annual sales. An eBay PowerSeller is someone who sells at least $1,000 (U.S.) a month.

After that successful fishing expedition, the CRA is sounding the war drums with a news release on July 30. According to the release, the CRA will contact eBay sellers at the end of the summer to remind them to report their online income and to give them a chance to correct their records, if needed. If the sellers ignore this courtesy notification, presumably, the CRA would match sales records confiscated from eBay to information filed on the tax returns. Any discrepancy would result in additional taxes, penalties and interest.

If you are an eBay seller at risk, here are a few things to keep in mind; the CRA was provided with the sales and contact information for PowerSeller status sellers for 2004 and 2005. If you weren't a PowerSeller in 2004 or 2005, the CRA doesn't have your number.

Presumably, the CRA is targeting professional e-commerce sellers, not the occasional eBay seller attempting to dispose of used items such as a couch, stamp collection, old books, mugs or CDs, etc. In any event, these sellers were likely selling at a loss. For example, selling your used Chemistry text for $50 makes you $50 richer. Except, for tax purposes, you have a loss of $30 if, say, you paid $80 for the book. Even if you did sell your rare Captain Spock mug for $50 (say your cost is $5), the $45 profit isn't taxable. An obscure tax concept called the Personal-Use Property renders the profit on low-value personal-use items to be nil. See the CRA's guide on capital gains for more information on Personal-Use Property: http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-08e.pdf

If you are a PowerSeller in 2004 and 2005, and have fully reported your eBay sales, you have nothing to fear. If you have under-reported your PowerSeller eBay sales, you better hustle and send in your correct sales and expenses information for a reassessment as soon as the CRA contacts you.

Burying your head in the sand will cost you more than you imagine. Your inaction will force the CRA to audit and reassesses your tax return to include your unreported eBay sales income. If so, the CRA will include 100% of your gross sales and allow for zero expenses, simply because the CRA has no idea what your expenses were. Fighting the CRA to establish those legitimate business expenses after you received your enormous tax bill (shipping is free) won't be anything like a pleasant eBay shopping experience.