Billions in pandemic relief went to businesses with tax debt or insolvency issues, say CRA documents

As part of Ottawa’s generous COVID support program, taxpayers paid $37.7 billion in pandemic wage subsidies to businesses with tax debts and $1 billion to insolvent companies.

Billions in pandemic relief went to businesses with tax debt or insolvency issues, say CRA documents
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The $37.7 billion represents over 37% of the total cost of the Canada Emergency Wage Subsidy (CEWS), which accounted for $100.7-billion of the $210.7-billion spent on pandemic benefits to individuals and businesses.

According to a Canada Revenue Agency (CRA) document, the CEWS paid employers experiencing significant revenue declines during the pandemic, helping them keep employees on the payroll. But billions went to companies with tax or insolvency problems, highlighting that some struggled before COVID-19.

In January, CRA Commissioner Bob Hamilton told MPs he did not consider it “worth the effort” to review more than $15 billion in pandemic wage benefits after the Auditor General unveiled they may have gone to ineligible recipients.

The Auditor-General said in a 2021 report that employers with tax debts have a high likelihood of insolvency, meaning “giving the subsidy to these employers could present a risk of inefficient use of public funds.” At that time, The Globe and Mail identified over 100 bankrupt companies that received CEWS payments.

Per the new CRA document, 2,638 businesses that received pandemic aid have filed for insolvency as they are either in bankruptcy, receivership or involved in proposals to repay amounts owed.

In 2021, 388 firms received more than $3.6 billion in CEWS payments, but new CRA figures show the final amounts are 2,280 firms that received $9.9 billion.

Ottawa amended CEWS legislation in the program's final days to restrict access to benefits that did not subsidize payroll, forcing 57 businesses to repay taxpayers a combined $56 million.

The CRA commissioner blamed the federal government’s legislation for allowing bankrupt companies or companies with tax debts to apply for the pandemic subsidy. 

“I want to ensure we don’t confuse administrative issues with policy issues because you can get both in here. People might think from a policy perspective that a company should not have been eligible. We administer the legislation as it is drafted,” he said.

Conservative MP Kelly McCauley asked if the CRA advised Ottawa not to permit businesses with tax debts to access the program.

Hamilton said he could not discuss the CRA’s private advice.

“I keep getting pushed to talk about what recommendations we might have made within the confines of discussions, so I’m not going to go there, but suffice it to say that we were part of the discussions, and as we saw things, we took note of them. You’re right: If a company looks like it’s going to be insolvent, that makes the prospect of collection, should there be a problem, riskier,” said Hamilton.

McCauley told The Globe and Mail Wednesday it is clear that insolvent companies accessing the subsidy were a ‘political decision.’

“When there are clear indicators of potential risks, I would expect the government to protect taxpayers better than simply shovelling money out the door,” he said. “Here we are paying scofflaws with taxpayers’ money while, at the same time, they owe taxpayers billions and billions.”

Former Finance Minister Bill Morneau said the Prime Minister’s Office routinely overruled his concerns about the cost of pandemic benefits based on political calculations.

“My job of providing counsel and direction where fiscal matters were concerned had deteriorated into serving as something between a figurehead and a rubber stamp,” he said.

“There was only revision of my recommendations, ever upward, toward funding levels that the PMO believed would play well the next time Canada went to the polls.”

The CRA document attributes approximately 140,000 CEWS recipients accounted for $7.5 billion in tax debt before receiving their first CEWS payments. It found 157,082 CEWS recipients have unpaid taxes, with debts totalling $ 9.5 billion.

“CEWS was provided so businesses could retain or rehire employees,” reads the agency document. “The CEWS should not be seen as a contribution to a company’s bottom line, but rather as an employee retention and support program.”

According to a December report from Auditor-General Karen Hogan, she uncovered $4.6 billion in overpayments to ineligible recipients and claimed $27.4 billion required further investigation. That sum includes $15.5 billion for businesses that accessed CEWS without observing a significant fall in revenue, which the CRA disputes.

CRA assistant commissioner Cathy Hawara told The Globe the agency accrued $14.7 billion in payments that would receive further review.

“We’re about to launch another 2,500 audits this coming April,” said Hayward, claiming the $15.5 billion figure references 51,000 employers, of which about 92% are small and medium-sized.

She added the agency’s $14.7 billion figure concerns 4,117 audits on larger businesses which is likely to increase as they launch more audits.

About $8.2 billion in CEWS payments went to 260 companies with between 1,000 and 4,999 employees each, and 68 percent of that amount, covering 85 businesses, is under CRA audit. 

A further $ 2.4 billion went to 24 companies with over 5,000 employees each, and the agency is auditing ten firms representing 68 percent of that amount.

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