The Conservative government announced new measures recently to try and crack down on the ‘underground economy.’ The results would see Canadian businesses that use, possess, or acquire electronic sales suppression (ESS) software or devices, also known as zappers, facing penalties of up to $50000 per infraction. Failing to comply with Canadian tax regulations is, especially for businesses, a serious offence, and the government is attempting to curb these dishonest and illegitimate practices.
What is an electronic sales suppression device or ‘zapper’? This new technology selectively modifies or deletes certain sales transactions on point-of-sale systems, effectively erasing any record of that transaction. The result? Those transactions are not reported as income, and therefore less tax is required to be paid.
Additionally, Canadian businesses using, possessing, acquiring, making, developing or selling ESS devices can also be found guilty of a criminal offence, with a summary conviction resulting in a fine of up to $500000 and two years in jail. An indictment comes with a $1 million fine and up to five years in jail.
It seems as though this problem is most prevalent in the restaurant industry, and the Canadian Restaurant and Food Services Association has estimated that these ‘phantom cash sales’ could be in the billions. But CRA is not powerless against this, and in 2008 alone charged four restaurants after it was found that in total nearly 200000 cash transactions had been ‘zapped’ (totaling $4.6 million).
So, if you are a business that uses one of these systems, your chances of getting caught by CRA are getting much higher. Your best course of action: Voluntary Disclosure. The Voluntary Disclosure Program (VDP) gives taxpayers the chance to come forward and correct incorrect filings or disclose information that is as yet unknown to CRA. If the disclosure is complete and accurate, the taxpayer may be exempt from penalties or prosecution.
That being said, the VDP process is a complex one and needs to be carefully navigated in order to keep yourself protected. If your application is not correct the very first time, it will be denied and you will have effectively notified the CRA of your noncompliance.
In order to qualify under CRA’s Voluntary Disclosure Program you must satisfy the following criteria:
- The tax year in question must be at least 1 year old
- The voluntary disclosure must involve a penalty
- The disclosure must be voluntary
- The disclosure must be complete
Want to take your chances? Good luck. Don’t feel like playing roulette with your financial stability? Perhaps Voluntary Disclosure is your best bet. Contact Tax Solutions Canada today to get things started on your VDP application at 1-888-868-1400 or visit www.taxsolutionscanada.com.