CANADA: Revenue agents are gearing up for a war against Underground Economy

“If left unchallenged, the underground economy will erode the integrity of Canada’s tax system” The Honourable Kerry Lynne D. Findlay, Minister of National Revenue Canada, is showing her government’s determination to fight tax evasion at the latest UE strategy meeting.

Underground economy includes both unreported and under-reported sales or income, which may involve:
failure to file or register;
failure to report a business activity;
failure to report part of a business activity or income; or
failure to report employment income.

Electronic Suppression of Sales (ESS) software (commonly known as zapper software) has been used by some businesses to hide their sales…

… to evade the payment of sales and income tax. ESS software selectively deletes or modifies, without a record of the deletion or modification, sales transactions from the records of point-of-sale systems (for example, electronic cash registers) and businesses’ accounting systems.

Boston University law professor Richard Ainsworth estimates that some 5% of all restaurant industry’s sales in the United States are zapped from financial records. According to the Canadian Restaurant and Food Services Association, Canada’s restaurant industry generates $65 billion in annual sales. If similar trends prevail in Canada, zapper use could account for $3.25 billion in unreported sales. As a result, fighting zapper use is a priority for us and a major initiative in our underground economy strategy.