Money earned online with auction sites such as eBay is taxable just like regular income, Canada's minister of national revenue said Thursday.

"Taxpayers should know that the tax laws that apply to traditional commerce apply in the same way to electronic commerce, like eBay selling," Jean-Pierre Blackburn said Thursday.

"I strongly encourage eBay sellers, and for that matter, any taxpayer who has not already done so, to correct their tax affairs as soon as possible to avoid penalties or prosecution."

In 2007, a Federal Court of Canada decision required eBay Canada to provide tax officials with the full account information on their sellers, including their names, user IDs, mailing addresses, billing addresses, phone numbers and email addresses.

The Court of Appeal upheld that decision in April 2008 and as a result, in November eBay Canada began providing the Canada Revenue Agency with the names of eBay sellers who earned more than $1,000 a month for three straight months, as well as their contact information and sales records.

The tax agency can use the information to determine if eBay sellers properly reported the income they earned from sales. If the body determines that an individual or a business did not comply with the tax laws, it will take any necessary action, it warned.

In addition to paying any outstanding taxes, plus interest, consequences may include penalties, as well as legal actions that could result in fines and other imposed sanctions, the agency said in a release.

No penalty for voluntary disclosure

"To avoid paying these fines and penalties, taxpayers who have failed to file income tax returns for past years or who have not reported all their income can voluntarily correct their tax situation," Blackburn said.

Under the voluntary disclosures program, taxpayers who take the initiative to correct or disclose any information will not be penalized or prosecuted if they make a full disclosure before the CRA starts any audit or other compliance action.

The agency expects that the audits, based on the information received from eBay, will begin at the end of this summer.

They will then begin contacting eBay sellers to ensure they have filed all required returns and accurately represented the full scope of their business income.