Software used by restaurants and other businesses to avoid paying taxes is now illegal, warns the Canadian Revenue Agency, which is asking businesses that use it to stop, or face potential fines.
In January, new rules were implemented to close a loophole that allowed electronic suppression of sales software (ESS) – otherwise known as zappers – to be used, even though some experts argued its only purpose is tax evasion.
The loophole came to light after a CRA investigation dating back more than a decade that led to several lower mainland restaurants being fined for tax evasion using zapper software.
In 2012, InfoSpec Systems Inc., a Richmond company that makes point of sales systems for the restaurant industry, was fined $100,000 for making and selling software that – when used with its Profitek point of sales system – would allow those using it to hide the actual amount of taxes they should have to pay.
But in 2013, the B.C. Court of Appeal overturned the fine.
According to the court, it had not been proven that two Winnipeg restaurants actually used the zapping software InfoSpec had sold them to avoid paying taxes.
And despite the assertion by some experts that the software has no other purpose but to cover up the amount of taxes a business should pay, the court said the software could, in fact, be used for legitimate purposes.
Zapping software deletes a portion of a businesses’ sales, which appears to reduce the amount of GST and PST they should pay.
The CRA has since introduced measures making the use of zapper software illegal. On June 5, the CRA issued a press release warning businesses that have been using zapper software they could face fines up to $50,000 and jail time up to two years. Companies that make and sell zapping software faces up to $100,000 and up to five years in jail.
“If you have been using ESS software and want a second chance to correct your tax affairs, you can make things right through the CRA's voluntary disclosures program,” the CRA said in a press release.
