In the world of computers and computer programming someone has developed software that will remove sales from your point of sale software. The industry term is zapping sales and the technical term is electronic suppression of sales.
What does the software do? It deletes or modifies sales transactions from a point of sale (POS) system without maintaining a record of those changes (no audit trail).
In the early days of POS systems, as they were developed, there basically was no audit trail and you could make changes at will and there would be no record of them. Over the years, some people have determined that they could adjust their sales and pocket the funds from those unrecorded sales and also reduce their taxes at the same time. The downside is that if you try to sell your business, you may not get top dollar because you have not been recording all your revenue.
Many new programs that are industry specific programs are also put into the market without proper controls or audit trail increasing the risk of an audit and also a risk for the accountant the prepares the tax return based on the results of the software. Going forward, many systems are installing or have installed audit trails with the ability to track transactions and changes to transactions in the computer system. A proper audit trail will allow someone to follow an entry from its origination, being the first data entered into the system, through the system and out into a final report produced by the system as well as any changes made to that original data. The more sophisticated programs will allow the user to turn on or off this function as needed so that it doesn’t clutter up reports that you need to run your business.
On December 12, 2013, the CRA gave proposed legislation Royal Assent to control and penalize the use of this suppression of sales software and combat the tax evasion as a result of the underreporting of revenues through the use of electronic suppression of sales. The legislation came into effect January 1, 2014.
Some warnings: If you are in the market for POS software, make sure that it complies with the new legislation and has an audit trail before you purchase the software. If you are purchasing a business that uses point of sale software, make sure that you review both the financial statements for the last five years as well as the tax returns and that the software is compliant with the legislation. If you are using POS software currently, contact the software provider and make sure that the version you are using complies with the new legislation. Your accountant may ask for this verification before preparing your year end financial statements and tax return and to determine the risk of the accounting engagement.
What are the penalties? The ones that will hit your bank account for the use, possession or acquisition of the software is $5,000 for the first infraction and $50,000 for any subsequent infractions. If you manufacture, develop, sell, the software it is $10,000 for the first infraction and $100,000 on any subsequent infractions. Once you are on the radar for any sort of tax infraction, it has been the practice of CRA to monitor your operations for at least another three years after the initial infraction.
The criminal charges will be a fine of not less than $10,000 and not more than $500,000 or imprisonment of not more than two years or both the fine and imprisonment on a summary conviction. On a 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 the fine and imprisonment. The difference between a summary conviction and an indictment can be explained by being caught by association being a lesser crime which would be a summary conviction versus being caught by an active investigation into your operations resulting in an indictment.
If you are using this software, delete it from your system and destroy the software immediately. If you have used this software to file past tax returns, you can get some relief by using the provisions of voluntary disclosure. The disclosure can be made via a letter or by way of filling out form RC199 and any associated schedules and sending them to the tax centre as stated on your notice of assessment.
All tax payers being individuals or businesses are required to keep their paper and electronic documents for 6 years plus the current year in case of a CRA audit.