InfoSpec sold “zapper” software. It was convicted of fraud under s. 380 of the Criminal Code of Canada. (It wasn’t convicted of the charge of tax evasion.) It appealed the fraud conviction saying that “the sale of software designed to assist a third-party to commit fraud is not itself fraud.” (Para. 3). The BC Court of Appeal agreed and over-turned the conviction.
As the BCCA said: “The issue on this conviction appeal is whether criminal liability for defrauding the public attaches to the act of selling a type of computer software called a ‘zapper’, knowing that its only purpose is to assist its purchaser to evade payment of federal and provincial taxes by under-reporting income.” (Para. 1)
The BCCA relied on the fact that “the law does not prohibit the making, possession, or sale of a zapper.” It noted that though the Criminal Code prohibits “the possession, making, or selling of certain things capable of being used to commit crimes”, software that deletes sales is not on the list. (Para. 21) So, the Court concluded that InfoSpec’s sales were not prohibited by law and it did nothing illegal by selling the software. (Para. 22)
The BCCA felt stronger in its view because there was no evidence that the Manitoba restaurants, to which InfoSpec sold the zappers, ever used the software. (Para. 20) Still, the Court said that even if a Winnipeg restaurant had used the software to evade taxes, InfoSpec’s sale would not be a crime. Rather, InfoSpec could be guilty of tax evasion as a “party” who helped the restaurant in its tax fraud. (Para. 23) (It seems that after the BCSC conviction, at least one of the Winnipeg restaurants did plead guilty to using this software in Manitoba.)
This decision may only have short-term relevance. In its 21 March 2013 Budget announcement, the Federal Government proposed: “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.” The proposals will be effective as early as 01 January 2014 and will cover “the use, possession, acquisition, manufacture, development, sale, possession for sale, offer for sale or otherwise making available of [Electronic Suppression of Sales] software”. See Department of Finance, Budget 2013 “Annex 2: Tax Measures: Supplementary Information and Notices of Ways and Means Motions”.
Quebec and Manitoba have such laws already. See ss, 34.1 and 34.2 of Quebec’s Tax Administration Act, RSQ c A-6.002 and s. 18.1 of Manitoba’s The Tax Administration and Miscellaneous Taxes Act, C.C.S.M. c. T2