Winnipeg Free Press - PRINT EDITION

Tax software's maker not guilty; eateries are

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In Winnipeg, two restaurants were fined more than $700,000 for evading taxes, but the company that sold them the software found itself celebrating a court victory in British Columbia.

The case with the two very different outcomes played out in two courtrooms thousands of kilometres apart in different jurisdictions.

They hinge on digital footprints and the trace they left.

This spring, the owners of the former Foody Goody on Ellice Avenue and the Buffet Square on Ness Avenue pleaded guilty to using the Zapper, a software program that deletes selected sales. It's used to underreport income for tax purposes.

The Canada Revenue Agency slapped the corporations that owned the two Chinese-food buffets with a total of $731,986 in back taxes and fines and issued a detailed statement about the prosecutions to act as a deterrent.

Owners of both restaurants pleaded guilty to tax evasion; Foody Goody for 2007-09 and Buffet Square for 2006-08.

Few media picked up the news item May 1. It named Joe Chung, Chee Cheung, Andy Tsz-Wei Chung, Kenneth Wa Chung Ng and Gibson Mei-Chi Lam, all of whom pleaded guilty as shareholders of Foody Goody. The shareholders for the numbered company that controlled Buffet Square weren't named. Both restaurants were shut down.

Manitoba's 2,000 restaurants are represented by hospitality group, the Manitoba Food and Restaurant Association. Executive director Scott Jocelyn said he gets a lot of calls from restaurant owners to clarify rules and laws and it's never good to hear about cases such as this.

"I can paint the picture for them; I wouldn't get excited about software like this to beat the system," Jocelyn said. "You're always worried about bringing attention this way to the industry." Two other Winnipeg restaurants share the name Buffet Square and one of them is owned by the same corporation as the restaurant on Ness but neither one was named in the Canada Revenue Agency case. They are still in operation.

Meanwhile, hundreds of kilometres to the west, a B.C. company that made the Zapper software was fighting a conviction for fraud.

The B.C. Court of Appeal concluded Wednesday the B.C. company that created software to underreport sales couldn't be convicted of fraud. It reversed a lower court conviction against the company.

The panel of three justices ruled there was no evidence the Zapper software, created by InfoSpec Systems Inc., was ever used by the two Winnipeg restaurants.

In Winnipeg, the B.C. court ruling didn't raise any eyebrows.

It turns out there's no digital footprint, in court documents, to tie the two cases together.

"It did not come out in court where the software was purchased from," said Canada Revenue Agency spokesman Kevin Lloyd. "As such I cannot confirm that the Vancouver ruling is related to the restaurants in this prosecution."

The B.C. company created and marketed point-of-sale software known as Profitek, that allowed restaurants to keep track of sales. It also made the Zapper software available to clients.

Zapper allowed clients to delete selected cash transactions from sales records and as a result, underreport their incomes.

According to court records, InfoSpec president Pius Chan sold Zapper to two Winnipeg restaurants, knowing the programs would be used to facilitate tax evasion.

There was, however, no evidence the restaurants installed the software they purchased from the Vancouver company. News reports from Vancouver don't identify the Winnipeg restaurants.

The Canada Revenue Agency didn't specify where the two Winnipeg restaurants got their software.

The Vancouver case covers an extended period between 2000 to 2008 but without the digital footprint, the Crown couldn't prove its case.

The court also ruled against the Crown's bid to have the company convicted for attempted fraud. Selling Zapper software was not illegal at the time.

The Canada Revenue Agency is closing that loophole. The 2013 budget proposed new sanctions for the possession, use, sale and the offer to sell, upgrade, update or maintain suppression software of this kind to both the Income Tax Act and the Excise Tax Act that cover GST/HST tax.

alexandra.paul@freepress.mb.ca

Republished from the Winnipeg Free Press print edition July 19, 2013 B4

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