Zapper Update

Today’s Toronto Star ran an article about restaurants hiding cash income.  You can find it here:  Restaurant probe finds $40M in ‘phantom’ sales.

Until recently, most detective work surrounding the use of zappers had been focused in Quebec.  Now, we find out that the CRA has been involved in a two year, national probe of the restaurant industry.  So far, they’ve found about $40 million of unreported income, though they expect to find much more by next March when the study is completed.

Of course, such unreported income must be in cash, as there is a separate audit trail for all credit card receipts.  It appears that this CRA probe concerns the use of zappers by restaurants.  Previously, I wrote about zappers, here.

I find it interesting that the CRA has only found about $40M of unreported sales, whereas Revenu Quebec estimated $417M of unreported taxes in a two year period.  It may be that CRA is considering only unreported sales using zappers, whereas Revenu Quebec is estimating tax losses by any means.  The scary thing is that someone, presumably at CRA, named Caitlin Workman is quoted as saying, “preliminary work indicates that (practice) is prevalent across Canada.”  So, the CRA thinks that the use of zappers in the restaurant industry is prevalent!

Prior to undertaking this probe of the restaurant industry, the CRA had identified only 11 cases of using a zapper, and zappers have been around since the mid-1990s.  Does this sound “prevalent” to you?  I’m willing to bet that Revenu Quebec, alone, identified more than 11 uses of zappers in the past.  In fact, they have prosecuted about 275 cases of restaurants using zappers during the last 10 years.  While other researchers have given their opinions that the use of zappers is likely to increase in the future, there does not appear to be a consistent level of usage across all jurisdictions.  In fact, several local factors lead many of us to believe that Quebec restaurants are much more likely to use zappers than restaurants in other parts of Canada.  I’ll be examining this opinion in more detail in a future post.

Both the federal and provincial tax authorities know that the restaurant industry is an easy target for assessing taxes on “unreported sales”.  Studies like this one that find any evidence of unreported sales give them the justification to step up their enforcement efforts.  The CRA and all of the provincial tax authorities use indirect audit methods to determine unreported sales, they do not wait to find the existence of a zapper.  All restaurant owners (even completely honest ones) need to be even more careful in the next few years.

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