Combatting the Underground Economy

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Crack Down on Businesses Using Electronic Sales Suppression Software

By A Correspondent

Edmonton, Alberta, September 11, 2013 The Honourable Kerry-Lynne D. Findlay, Minister of National Revenue, P.C., Q.C., M.P., was joined by the Honourable Laurie Hawn, Member of Parliament for Edmonton Centre, and Garth Whyte of the Canadian Restaurant and Foodservices Association (CRFA) today to announce new measures to combat the underground economy and the use of electronic suppression of sales (ESS) software.

“Our Government is committed to cracking down those who attempt to cheat the system and ensuring a level playing field for honest businesses,” said Minister Findlay. “All Canadians must meet their tax obligations. Businesses that use ESS software to underreport their revenues and avoid paying taxes are on notice. We will continue to support Canadians who work hard, play by the rules, and pay their taxes.”

Taxpayers are required to maintain adequate books and records as well as all of their electronic data files. ESS software (commonly known as “zapper” software) selectively deletes or modifies sales transactions in point-of-sale systems (for example, electronic cash registers) and business accounting systems, leaving no record of the original transaction. The use of ESS software undermines the competitiveness of businesses that abide by the rules, as it offers an unfair advantage to those who fail to comply with Canada’s tax laws.

“When some businesses cheat, we all lose. These new measures are an important piece of our Government’s plan to help Canada continue on its path to economic growth,” added M.P. Hawn.

Economic Action Plan 2013 proposed new administrative monetary penalties and criminal offences under both the Excise Tax Act and Income Tax Act to specifically address software that can suppress sales records. These measures will strengthen existing penalties and offences for making false statements or omissions under each of the Excise Tax Act and the Income Tax Act, as well as existing sanctions under the Criminal Code.

Under the new proposals, businesses that use, possess, or acquire ESS software will face monetary penalties of $5,000 on a first infraction, and $50,000 on any subsequent infraction. Anyone who manufactures, develops, sells, possesses for sale, offers for sale or otherwise makes available ESS software will face monetary penalties of $10,000 on a first infraction, and $100,000 on any subsequent infraction.

Businesses or others found guilty of a criminal offence of using, possessing, acquiring, manufacturing, developing, selling, offering for sale, or otherwise making available ESS software will face:

  • on summary conviction, a fine of not less than $10,000 and not more than $500,000, or imprisonment for a term of not more than two years, or both; or
  • on conviction by indictment, a fine of not less than $50,000 and not more than $1 million or imprisonment for a term of not more than five years, or both.

“The Canadian Restaurant and Foodservices Association welcomes this step, which penalizes the underground economy, not the above-ground economy,” said Garth Whyte, CRFA president and CEO. “These measures appropriately target the producers, installers, and users of sales-distorting software, while supporting the competitiveness of Canada’s hard-working small business community, among them 81,000 restaurants, the vast majority of which pay their taxes and operate in full transparency.”

JULY 2018

Vol. 12 - No. 12


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