Budget 2013 - Electronic Suppression of Sales Software Sanctions

Aceti & Associates - Thursday, August 07, 2014
Budget 2013 proposed new administrative monetary penalties and criminal offences under theExcise Tax Act (in respect of GST/HST) and the Income Tax Act to address the underreporting of revenues through the use of electronic suppression of sales software, also known as "zappers" or phantomware. The proposed legislation received Royal Assent on December 12, 2013, and came into force on January 1, 2014.

The budget proposed new administrative monetary penalties and criminal offences for both GST/HST and income taxes to specifically address the underreporting of revenues through the use of electronic suppression of sales software. The new penalties and offences are:

New monetary penalties

For use, possession or acquisition of ESS software:

  • $5,000 on the first infraction; and
  • $50,000 on any subsequent infraction.

For the manufacture, development, sale, possession for sale, offer for sale or otherwise making available ESS software:

  • $10,000 on the first infraction; and
  • $100,000 on any subsequent infraction.

New criminal offences

For use, possession, acquisition, manufacture, development, sale, possession for sale, offer for sale or otherwise making available ESS software:

  • 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 $1,000,000 or imprisonment for a term of not more than five years, or both.

Except in the case of use, the new penalties will not apply where a person can establish that they have exercised the degree of care, due diligence, and skill to prevent the contravention with respect to ESS software that a reasonably prudent person would have exercised in comparable circumstances.

If you know or suspect that ESS capability resides in your software, you must take steps to delete it. It is also suggested that you contact your software provider to obtain assurance from them that the software is compliant with the legislation.