What is Electronic Sales Suppression (ESS) and what is Canada Revenue Agency (CRA) doing about it?

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By Grant Gilmour

ESS is software that is being marketed and sold to businesses all across the world, also known as “zapper” software.  This software alters or deletes sales transactions from cash registers for the purposes of avoiding income tax and GST/HST on sales.

Discussion:

The 2013 federal budget introduced new sanctions that went into effect on January 1, 2014 to allow CRA to impose penalties for designing, possessing, acquiring or offering to sell any ESS software.

As per CRA’s website, businesses that use or acquire ESS software will face the following administrative penalties:

•  $5,000 on the first infraction

•  $50,000 on any subsequent infraction

Anyone who manufactures, develops or offers for sale the ESS software will face the following penalties:

•  $10,000 for the first infraction

•  $100,000 on any subsequent infraction

Under new legislation, businesses that use or develop and sell the ESS software will face the following criminal penalties:

•  On summary conviction, a fine of not less than $10,000 and not more than $500,000, or imprisonment 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.

CRA is working hard to detect and deter those who choose not to comply with tax laws.  This is to ensure that all income is reported, the proper amount of taxes is paid, and the tax system is fair for everyone.  CRA is encouraging everyone to disclose to them of any taxpayer who is not complying with the tax laws through their Informant Leads Program.  They will review the information received and take appropriate action.

If a taxpayer has been using the ESS software, CRA is encouraging them to report the correct information to them through the Voluntary Disclosures Program (see FAQ #120). If they make a valid disclosure before CRA is aware of the issue and is taking action against them, then CRA will only make them pay the taxes owing plus interest and they will avoid the penalties listed above.

Recommendation:

If you would like more information on ESS software or the Voluntary Disclosure Program, please contact Gilmour Knotts Chartered Accountants.