Federal 2013-2014 Budget – Part 4: Other Federal Tax Measures

Here is the final post in our 4-part blog series on tax law highlights contained in the 2013-2014 Federal Budget announced by the Federal Minister of Finance on March 21, 2013. For all of the details see the related Supplementary Information and Notice of Ways and Means Motion (NWMM).

In addition to personal income tax measures, business income tax measures and international taxation, other federal tax measures are summarized below:

Electronic Suppression of Sales Software Sanctions

Electronic suppression of sales (ESS) software (also commonly known as “zapper” software) has been used by some businesses to hide their sales to evade the payment of GST/HST and income taxes. ESS software selectively deletes or modifies, without a record of the deletion or modification, sales transactions from the records of point-of-sale systems (e.g., electronic cash registers) and businesses’ accounting systems.

The Budget proposes new administrative monetary penalties and criminal offences under the Excise Tax Act (i.e., in respect of GST/HST) and the Income Tax Act to combat this type of tax evasion. Specifically, it is proposed that the following new administrative monetary penalties apply:

• For the use of ESS software, an administrative monetary penalty of $5,000 on the first infraction and $50,000 on any subsequent infraction.
• For the possession or acquisition of ESS software, an administrative monetary penalty of $5,000 on the first infraction and $50,000 on any subsequent infraction, except where a person exercised due diligence.
• For the manufacture, development, sale, possession for sale, offer for sale or otherwise making available of ESS software, an administrative monetary penalty of $10,000 on the first infraction and $100,000 on any subsequent infraction, except where a person exercised due diligence.
• The due diligence defence will generally require that, to avoid the penalties, a person establish that they exercised the degree of care, diligence and skill to prevent the contravention with respect to ESS software that a reasonably prudent person would have exercised in comparable circumstances.

In addition, new criminal penalties will be introduced ror the use, possession, acquisition, manufacture, development, sale, possession for sale, offer for sale or otherwise making available of 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 2 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 5 years, or both.

Indigenous Tax Policy

The Government of Canada states that it supports initiatives that encourage the exercise of direct taxation powers by Indigenous governments and notes that it has entered into 34 sales tax arrangements under which Indian Act bands and self-governing Indigenous groups levy a sales tax within their reserves or their settlement lands. In addition, 14 arrangements respecting personal income taxes are in effect with self-governing Indigenous groups under which they impose a personal income tax on all residents within their settlement lands. The Government reiterates its willingness to discuss and put into effect direct taxation arrangements with interested Indigenous governments. The Government of Canada also supports direct taxation arrangements between interested provinces or territories and Indigenous governments and has enacted legislation to facilitate such arrangements.

Tags: Article; Tax; William (Bill) H. Cooper