New penalties for businesses that use illegal electronic sales suppression software
The Canada Revenue Agency (CRA) is aware that electronic sales suppression (ESS) software is being marketed and sold to Canadian businesses. As part of its efforts to combat the underground economy, the Government of Canada has introduced new measures to address this problem.
ESS software (commonly known as zapper software) is illegal. Designed to work with point‑of‑sale systems and electronic cash registers, businesses use this software to knowingly delete part of their sales from their computer records to reduce their GST/HST and income tax obligations. Using ESS software offers an unfair advantage to those who use it to circumvent Canada’s tax laws, which in turn undermines the competitiveness of businesses that follow the rules.
The Government of Canada is committed to protecting the integrity of Canada’s tax system. New measures took effect on January 1, 2014 that allow the CRA to impose civil penalties for designing, using, possessing, acquiring, manufacturing, developing, selling, possessing for sale, offering for sale, or otherwise making available ESS software. These measures also include new criminal offences. The new penalties and offences are as follows:
Administrative monetary penalties
Under the new legislation, businesses that use, possess, or acquire ESS software will face the following administrative monetary penalties:
- $5,000 on the 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 $10,000 on the first infraction, and $100,000 on any subsequent infraction.
Under the new legislation, businesses or others that use, possess, acquire, manufacture, develop, sell, offer for sale, or otherwise make available ESS software will now 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 CRA is working hard to detect and deter those who choose not to comply with tax laws, so that all income is reported, the proper amount of taxes is paid, and the tax system is fair for everyone. This includes working to identify those who design, use, possess, acquire, manufacture, develop, sell, possess for sale, offer for sale, or otherwise make available ESS software. By discouraging the use of ESS software and penalizing those who continue to use it, the CRA is helping to ensure a level playing field for all businesses and taxpayers.
Although customers may not notice if a business is using ESS software, they can still do their part by always asking for a copy of their receipt. If you know of any taxpayer who is not complying with the tax laws, let us know. We will review the information and, when warranted, take appropriate action. For further information and a contact number, go to Informant Leads Program.
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 (VDP). The VDP allows taxpayers to correct inaccurate or incomplete information or disclose information they have not previously reported to the CRA. If they make a valid disclosure before they become aware that the CRA is taking action against them, they may only have to pay the taxes owing plus interest. Go to Voluntary Disclosures Program for more information on the program.
If your business has been contacted about ESS software or if you have information that could help the CRA identify someone who develops, sells, or uses the software, you are encouraged to contact the CRA Informant Leads Program where you will find information on how to report suspected tax evasion.
Get it right from the start—don’t zap! Visit About the underground economy to learn more about what the CRA is doing to address the underground economy.
For more information on the new measures to combat the use of ESS software, read the questions and answers or visit Electronic suppression of sales.
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