CRA reports a $19.4bn GST and HST debt, highlighting financial distress among businesses
Businesses failed to remit billions of dollars in sales tax to Ottawa last year, indicating financial distress.
In a report by The Globe and Mail shows the Canada Revenue Agency (CRA) has reported $19.4bn in outstanding GST and HST debt as of March 31, a $3.2bn increase from the previous year and double the pre-pandemic amount.
This figure marks the largest single-year increase in the CRA’s decade-long data. The debt rose only $1.3bn from the 2021-22 to 2022-23 fiscal year.
Two main factors contributed to this rise: the CRA had paused some compliance activities earlier in the pandemic and auditors are now catching up, finding shortfalls in remittances, and the economic impacts of the pandemic.
The increase in sales-tax debt coincides with a historic rise in failing businesses. Data from the federal Office of the Superintendent of Bankruptcy showed 5,743 business insolvencies for the 12 months ending in March, a 56.7 percent increase from the previous year.
These numbers include both bankruptcies and proposals, a legal option to negotiate lower debt repayment with creditors.
Trevor Pringle, an insolvency trustee at msi Spergel Inc., linked insolvencies and sales-tax debt, explaining that struggling businesses often delay remittances to pay other bills first.
“It’s hard not to pay your suppliers, because sometimes you want to continue on with the business,” Pringle said. “HST tends to be one that may be simpler not to pay.” However, this approach typically fails long-term, as business owners are personally liable for sales-tax debt even if the business closes.
Professionals working with small and medium-sized businesses note that official insolvency statistics likely undercount enterprise closures, as many owners walk away rather than undergo the bankruptcy process. Some later go through personal bankruptcy or proposals, which have also risen year over year.
Randall Bartlett, senior director of Canadian economics at Desjardins Group, noted that despite the rise in sales-tax debt, Ottawa has increased its GST collections.
The Finance Department’s monthly fiscal monitor reported $51bn from the GST in the 2023-24 fiscal year, a 9.5 percent increase from the previous year.
Ottawa posted $46bn from the GST in each of the 2021-22 and 2022-23 fiscal years, up from $32bn in 2020-21 when businesses were closed due to public-health orders.
Large retailers' executives have observed a slowdown in consumer spending in recent months. Bartlett suggested that the rising sales-tax debt, insolvency statistics, and other data indicate underlying business weakness.
“It does seem like there probably were a lot of businesses that were in a very tough financial position at the end of the 2023, beginning of 2024,” he said, noting that this was also when emergency pandemic loans came due.
Pringle reported that his insolvency firm receives daily calls from small and medium-sized business owners seeking help, often due to HST liabilities. “It’s highly unusual to come across a company that doesn’t have an HST liability,” he said.
