OTTAWA – One of every four Canadian businesses that collect GST fail to turn the money over to the federal government on time, often because they want to improve their own cash flow, says a new report.
The most common reason for failure to meet filing obligations was ensuring funds on hand didn’t run dry, says an April analysis from the Canada Revenue Agency.
“The majority of repeat non-compliant behaviour is a conscious decision on the part of the GST registrant. When cash flow is low, registrants may give priority to other suppliers and themselves, and avoid filing or making payments to the CRA.”
The report, based on 2007 statistics, found 776,000 businesses with “unresolved” accounts, meaning one or more of their scheduled GST remittances to the government was late.
With 3.2 million businesses authorized to collect the sales tax in trust on Ottawa’s behalf, the non-compliance level means one-quarter of all businesses are benefiting from unauthorized loans from the federal government.
And that rewards the tardy over the diligent, warns the report.
“Non-compliant registrants enjoy a distinct competitive advantage over compliant registrants,” says the analysis.
“Unless CRA corrects non-compliance and levels the playing field, compliant businesses may become non-compliant to ensure they can remain competitive.”
Most of the offending firms have between $30,000 and $100,000 in gross annual sales, and the problem is more common with new businesses.
The analysis also found a growing number of repeat offenders.
“Registrants having a history of repeat non-compliance have learned to manipulate the CRA’s efforts to recover tax returns and arrears payments.”
The document does not indicate the dollar value of the missing GST payments. But a report to Parliament last year indicated the overdue GST receivables were worth $4.81 billion in 2007-2008 – up by half a billion over five years.
The CRA has been fighting a losing battle with recalcitrant businesses, as the number of non-compliant accounts shot up by more than 50 per cent over the five years ending March 31, 2007.
The agency collected from fewer than two-thirds of all tardy businesses in 2007-2008, down sharply from 95 per cent five years earlier.
The receivables problem was also highlighted in Auditor General Sheila Fraser’s report to Parliament in May 2006, which found all tax debt growing at an alarming rate.
The problem of late payments is compounded in those provinces that have harmonized their sales taxes with the five per cent GST, creating a so-called HST.
New Brunswick, Nova Scotia and Newfoundland and Labrador have an HST, while Ontario and British Columbia plan to join them on July 1, 2010.
These provinces are paid their share of the HST whether or not the tax has actually been collected, leaving the federal government on the hook for both the unremitted federal and provincial sales taxes.
The report urges the federal government to take more firms to court, noting that just 22 prosecutions were completed in 2006-2007 out of the hundreds of thousands of offenders.
“Most managers interviewed do not consider the current level of prosecutions as a ‘credible enforcement’ response,” says the document, which recommends publicizing convictions to spread the word about the tough new stance.
A spokesman says the agency is considering taking more legal action.
“The CRA is reviewing ways of increasing prosecutions of non-compliant GST/HST registrants,” Noel Carisse said in an email.
Among other things, the agency is also considering an automatic telephone messaging system that would alert businesses to pending deadlines for remittances, he said.
The report notes that an economic downturn can worsen the late-payment problem.
Carisse said the agency recently upgraded its GST/HST computer systems, but the data conversion has meant that more recent statistics for non-compliance are not yet available.