$5 billion in undeclared online revenue, Ottawa says

Mike De Souza, with file from Fiona Anderson
Sun

The Canada Revenue Agency is planning to begin a wave of audits within weeks targeting Canadians who derive at least some of their income from regularly selling products on the online eBay marketplace website.

The agency warned on Thursday that it planned to launch the audits by the end of the summer after obtaining a list of high-volume eBay sellers (known as “PowerSellers“) along with their transaction records.

Federal Revenue Minister Jean-Pierre Blackburn says a legal process which allowed the government to obtain the list has opened the door for the taxman to go after information from other marketplace websites and crack down on up to $5 billion in undeclared revenues from people who do business online.

“This is certainly only the beginning of the process,” Blackburn told Canwest News Service. “We believe that a whole new market is opening [for the revenue agency].”

The government obtained the list of 5,000 individual members or companies and their online transactions on Nov. 7, 2008, following a lengthy legal battle that reviewed privacy issues as well as an appeal from eBay. The website unsuccessfully argued against disclosing the information on the grounds that it was stored on an electronic database outside Canada.

Blackburn said the government could not immediately use the information in November since there were still unresolved legal issues and a possibility of an appeal to the Supreme Court. But he said the government has since reached an agreement with eBay — described in court documents as “the world’s largest global online marketplace” — that will allow the revenue agency to use the information from the list.

It includes members who sold more than $1,000 US worth of products per month (or its equivalent in Canadian dollars) for any period of three consecutive months in 2004 and 2005.

He said that anyone with previously undisclosed revenues should voluntarily come forward immediately to avoid audits, penalties and fines.

While interest charges may apply, he said the agency can reach agreements to help people with massive tax bills manage the cost through a payment plan.

“Within a month we will start the audit process, one by one, to determine whether these people [on the eBay list] declared their revenues on their tax returns in 2004 and 2005,” he said. “If they haven’t done so, it’s certain that we will send them a new notice of assessment with penalties.”

Blackburn also said the court decision would open the door for the revenue agency to obtain transaction records from subsequent years.

The Canadian Taxpayers Federation said it disagreed with the government’s approach. The lobby group believes the government appears to presume that people doing business online are guilty of tax evasion.

Gary Petersen, owner of the Tale of the Whale art and antique store in Sooke, buys on eBay but doesn’t sell. He supports the CRA’s move to tax those who do sell. The other day he came across a seller who had more than 80 pages, about 1,500 items, for sale.

“People who do this for a living should be paying tax because tax is what pays for roads and schools and police and fire departments and everything,” Petersen said.

Chilliwack-based Antiques by Design sells some items through eBay. But co-owner Dennis Dargatz said that eBay providing information about them to the CRA “doesn’t bother us a bit.”

“We declare everything we sell as income, so it doesn’t matter to us,” Dargatz said. “We’re a real business, we’re not doing this as a sideline or for extra cash. So for us it has no effect whatsoever.”

Dargatz doubts the CRA will spend time going after someone who has sold half a dozen things through eBay over the past few years.

“But the people that are actively selling, sure that’s income and they should be declaring it as income,” he said.

© Copyright (c) The Vancouver Sun

‘Short of a revolt, we certainly need to make a huge protest’

Katie Mercer
Province

Former premier Bill Vander Zalm says he’s coming out of political retirement because he doesn’t mind ‘tackling issues.’ Photograph by: Gerry Kahrmann, The Province

One of B.C.’s feistiest former premiers is calling for a revolt against the Liberal government’s new harmonized sales tax.

Bill Vander Zalm — the defiant Dutchman who resigned as Socred premier in 1991 — says something needs to be done about the “$2-billion tax grab.”

And he’s willing to lead the charge.

“That’s why Bill Vander Zalm thought, ‘Well, if nobody else is going to bring this out, I’m going to have to step to the fore and do it anyways,'” the 75-year-old told The Province Thursday.

“I don’t want to get involved in politics, but I’m concerned about what’s happening to the province and I don’t mind tackling issues.”

Beginning next July, the seven-per-cent provincial sales tax and the five-per-cent goods and services tax will be merged into a 12-per-cent HST.

Previously PST-exempt items — restaurant meals, taxi fares, hydro and cable bills and more — will be seven per cent more expensive.

Vander Zalm says he’s irked that the Liberals broke their election promise to not introduce a new tax during an economic downturn. What’s worse, he says, is how they announced it.

It was hot and muggy last Thursday — the same day as commissioner Thomas Braidwood was grabbing headlines with his much-anticipated report on police use of Tasers — when the announcement was released.

Vander Zalm said it was a smart political move to effectively bury the story. The year-long delay before the tax is implemented will also help citizens to forget the issue, he added.

“It’s not a bad political move to do it this way, but we best be aware that it is a political move and we best act now,” Vander Zalm said.

“Short of a revolt, we certainly need to make a huge protest,” he said, imploring B.C. citizens to phone, write, organize demonstrations and put pressure on their MLAs. He can be reached at www.billvanderzalm.com.

Vander Zalm said the saddest part of the HST is that the poorest, who pay the most as a percentage of their income, will be hardest hit.

The move toward HST is contradictory, he said, as the government asks people to cut back on spending while taking more money from taxpayers.

Then there’s the economic impact, which will likely cause unemployment in industries such as tourism, homebuilding and restaurants, he said.

Vander Zalm said that none of his own, or his family’s, interests would be affected, and that was not the reason he was objecting.

Meanwhile, the Mining Association of British Columbia came out in support yesterday of the HST.

Association president and CEO Pierre Gratton said the new approach could lower operating costs that can then be reinvested in the province.

“When the mining sector is doing well, companies have money to invest in growth and that means new job creation,” Gratton said in a news release.

“This new tax structure will help attract investment into B.C. and help speed the way to economic recovery.”

© Copyright (c) The Province

Service providers say the HST will add to customer costs at a time of falling sales

Brian Morton
Sun

Many in B.C.’s service industry fear the province’s proposed harmonized sales tax will not only increase costs for clients, but make a bleak economic climate even worse.

Expect pricier movie tickets, too.

“When it goes into effect, you’ll probably see all movie theatres raising their prices by $1 to make up the lost revenue because of the tax,” said Leonard Schein, owner of Festival Cinemas, which operates Fifth Avenue Cinemas, Ridge Theatre and Park Theatre.

Although Schein said he doesn’t think the tax will drive customers away, some may opt for less expensive tickets offered for Tuesdays or matinees. “Movie theatres are still the cheapest form of entertainment. I don’t feel attendance will drop that much.”

However, Sam Ponnayya, co-owner of Oakridge Laser & Skin Care Clinic, wasn’t so optimistic.

“Sales are going to be down, at least 20 to 30 per cent, minimum,” said Ponnayya. “Eighty per cent of our business is service, and customers say it’s an added expense for them.”

Ponnayya said the new tax was announced at a time when the slowing economy has already hurt his business. “We’re planning to hire people, but I might have to hire part-time [employees], instead of full-time. We should have gotten a bit of a warning.”

Under the harmonized tax regime, announced last week by the provincial government, the five-per-cent federal goods and services tax will be combined with the province’s seven-per-cent provincial sales tax to make a 12-per-cent harmonized tax, effective July 1, 2010.

The added costs to consumers will come from the fact the new tax will apply to the same goods and services that the GST applies to, and that includes many items that are currently exempt from PST.

Personal services affected by the new tax include hair care, dry cleaning, repair services for household appliances, household maintenance such as renovations and painting, real estate fees, membership fees for health clubs, movie and theatre tickets, funeral services, professional services such as accounting and home care, and airline fares within Canada.

Scott Russell, president of the Real Estate Board of Greater Vancouver, said that while he did not yet know the full implications of the new tax, it will result in higher costs for such real estate-related services as realtors’ fees and house inspections.

“It’s just going to be an added cost at the end of the day,” said Russell. “Typically, the seller pays the [realtor’s] commission. So there’ll be another seven per cent on top of that. On a $10,000 commission, that’s another $700.”

Russell said appraisals usually cost about $300 and home inspections between $300 and $400 — both now subject to the HST. “And in rural areas, people have septic tank inspections.

“Real estate is an important economic driver. Some consultation would be helpful.”

Steven English, a certified general accountant in North Vancouver, said the new tax won’t be great for his profession overall because it’s an extra charge and could result in some people opting to do their own accounting.

Nevertheless, he said, the tax doesn’t bring a massive increase and in the long term, “I think it will be good because it [the harmonized tax] is easier to work with once it settles down.”

English said accountants will likely have to lower their fees a bit, with clients making up the rest. “I’m going to have to start eating some of it.”

Ron Zalko, owner of Ron Zalko Fitness Centre, Gym and Personal Training in Vancouver, said that while he doesn’t believe the extra cost will drive customers away, it sets a bad precedent.

“I think all fitness providers should be exempt from the tax,” he said. “If you encourage people to [stay fit], that will take a burden off the health-care system. If you’re fit, you’re healthy and productive. And most of this generation has just quit exercising.”

Zalko said the new tax could stop some people on limited budgets from joining fitness clubs.

© Copyright (c) The Vancouver Sun

North Shore’s Griffin Business Centre lets smaller operators avoid having to set up their own space

Brian Morton
Sun

David Laniado, in a boardroom at his North Vancouver Griffin Business Centre. Below, he shows off an executive office at the centre. Photograph by: Glenn Baglo, Vancouver Sun

Unlike large companies, many small businesses don’t have enough capital for a stand-alone office with its own meeting room, technology, personal reception, or even a water cooler.

To fill the gap, North Vancouver’s Griffin Business Centre, which opened in the fall of 2008, is leasing office space to more than 15 local small businesses so that they share such things as administrative support, an executive boardroom, business machines and office services, bike storage, showers, even a soundproof meditation room.

“All they need is their own computer and they’re set up,” Griffin president and founder David Laniado said in an interview. “They can focus on their business and we deal with everything else.”

Griffin Centre opened its 15,000-square-foot facility last fall and provides a fully furnished packaged office centre, including an extensive artwork collection, a state-of-the-art business centre and technology, 24-hour access, weekly office cleaning, and two kitchens.

“We set out to create the ideal environment for the entrepreneur,” said Laniado, who has four full-time employees at the centre to answer telephones for clients and take care of other business. “They want a first-class, inexpensive work space, and they don’t want to waste time with the usual hassles of running an office, dealing with IT, HR etc.”

Laniado, who has a background in real estate development, said a typical office at Griffin Centre rents for about $800 a month.

The centre also offers a “virtual office” starting at about $70 a month that includes telephone answering, mail handling and administrative support, as well as access to other services.

Laniado claims that by utilizing his model, clients can save about $25,000 in start-up costs and at least $50,000 per year. Laniado got his centre off the ground with a $6-million investment, including $3.5 million for the building and $2 million in renovations.

He has room for 34 clients and expects to be full by the end of the year.

Laniado also notes that more than four out of five businesses in Canada are micro-businesses, or companies with four or fewer employees.

“We have small companies and some larger businesses that don’t require a lot of space,” he said. “We also have large companies with satellite offices. [They have] very, very modest overhead, no capital expenditures. The desk and phone is there. The meeting rooms and projectors are all there.

“We have [as clients] a basketball school, an inventor, a couple of people in the medical field, and an architect. It’s an entrepreneurial atmosphere.”

Some of his clients are North Shore businesspeople who transferred their operations from Vancouver.

Steven English, a certified general accountant who has an office at Griffin Centre, said he’s very pleased with the centre because it has given him everything he needs at a good price.

“It’s saved me a lot of money and inconvenience. I’ve got a central point of reference for clients, who can drop things off if I’m not there. And I’ve got a meeting room any time I need it. The reception is excellent.”

Laniado is also working on a plan to open another centre in Surrey.

His advice to other aspiring entrepreneurs?

“Keep your overhead under control. There’s a tendency to look bigger than you are.”

He said one way he’s building his centre in recessionary times is to go back to the basics.

“Don’t be so cocky, be more appreciative of every deal. And I focus on service, on providing clients with the ultimate office experience.”

Griffin Business Centre

Website: www.griffincentre.ca.

Date formed: November 2008.

Number of employees: Four.

Startup costs: $6 million (including purchase of building).

Number of clients in November 2008: Two.

Number of clients today: 15, plus another nine “virtual” clients.

© Copyright (c) The Vancouver Sun

‘The outcome is likely layoffs. Care providers won’t have any choice,’ says head of organization

Brian Morton
Sun

B.C.’s care providers are worried that the province’s proposed harmonized sales tax (HST) will significantly reduce quality of care for seniors.

“This could mean a lower quality of care, as care providers are already stretched,” said David Hurford of the BC Care Providers Association. “It’s a very uncertain time, and there’s a growing demand for seniors’ services. This makes a tighter budget even tighter.

“The outcome is likely layoffs. Care providers won’t have any choice,” said Hurford, whose organization represents more than 130 non-profit and private B.C. seniors’ care providers responsible for more than 10,000 residential care beds in the province.

Under the harmonized tax regime, announced last week by the provincial government and planned for July 1, 2010, the five-per-cent federal goods and services tax will be combined with the province’s seven-per-cent provincial sales tax into a 12-per-cent harmonized tax.

The added costs to consumers come from the fact the new tax will apply to the same goods and services covered under the GST, including many items that are currently exempt from the PST.

Hurford said looming health cuts and the fact that care providers are already doing more for less will exacerbate the repercussions of the tax. Services newly hit by the tax include employee development, housekeeping and laundry, resident outings and travel, building maintenance, dietary contract services, refuse removal and pest control, landscape and snow removal contracts, and vocational therapists.

Also affected are personal services such as hair care, dry cleaning, repair services for household appliances, household maintenance such as renovations and painting, real estate fees, membership fees for health clubs, movie and theatre tickets, funeral services, professional services such as accounting and home care, and airline fares within Canada.

Hurford said the BCCPA was not consulted about the tax, but is conducting a review of its cost implications and plans to propose mitigation measures to the finance ministry, including a possible rebate to association members for staffing costs.

As it now stands, he said, non-profit and private residential seniors’ care facilities get much smaller rebates than health-authority care homes. He hopes that will change so all operators in long-term care are treated the same.

Hurford cited the experience in Ontario, where estimates suggest the HST could cost care providers more than $12 million.

Marilyn Slade, CEO of the non-profit Carital Continuing Care Society in Vancouver, said she believes the new tax will result in $200,000 in extra expenditures per year — the equivalent of more than two full-time registered nurses — at her 80-bed facility.

“I’m surprised [the government] didn’t think this through and bring it through with an exception for seniors’ care.”

Slade said up to 90 per cent of her expenses are labour-related, and that she will have to lay off people if the tax isn’t changed. “That’s the only way I can balance my budget.”

Hendrik van Ryk, COO of the privately-operated H&H Total Care Services, which has 240 beds, primarily for seniors, estimated the new tax will cost his company $350,000 a year and impact such services as housekeeping, laundry and food delivery.

“At one site, we’ll probably reduce staffing levels. We’ll do more with less.”

Meanwhile, Scott Russell, president of the Real Estate Board of Greater Vancouver, said that while he doesn’t yet know the full implications of the new tax, it will result in higher costs for such real estate-related services as realtors’ fees and house inspections.

© Copyright (c) The Vancouver Sun