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Businesses are beginning to pay down the record sales-tax debt they have accumulated during the pandemic, new Canada Revenue Agency data show.

The amount of total GST/HST debt to the government stood at $11.5-billion in March, 2020, and climbed during the pandemic to $14.9-billion in March, 2022, according to data the CRA provided The Globe and Mail.

The debt represents the amount of total sales tax that businesses had collected from customers and not remitted to the government. The mounting debt was a sign of broader financial distress because some businesses used sales-tax money to pay other bills instead of remitting it.

But according to new CRA data, businesses may have turned a corner. The amount of unpaid sales tax fell to $14.2-billion in the April-to-June quarter of this year.

CRA spokesperson Hannah Wardell said the tax agency attributed the decrease to businesses paying down hundreds of millions of dollars in debt this spring.

Experts say there are different factors that could be driving the debt repayment.

Pandemic benefits were too generous with businesses and stringent with workers, experts say

One reason is the increase in economic activity after lockdowns ended earlier this year. For example, sales in food services and drinking places plunged to $5.2-billion in January during the winter’s Omicron-fuelled lockdown, according to Statistics Canada. But sales rebounded in the spring to surpass prepandemic levels for the first time in two years, climbing to $7.4-billion in May.

Patrick Gill, senior director of operations at the Business Data Lab at the Canadian Chamber of Commerce, said the sales-tax paydown was encouraging, though cautioned that the recovery was still fragile.

“It’s moving in the right direction,” Mr. Gill said. “But there is still a lot of outstanding debt.”

According to Statistics Canada’s quarterly Canadian Survey of Business Conditions, the number of businesses that reported they could not take on more debt rose to 33 per cent in the second quarter of this year, up from 25 per cent in the first quarter. Smaller companies reported more concerns with debt load than larger companies.

Mr. Gill said he expects rising inflation could hamper businesses’ ability to pay down debt in future months.

Another major reason that repayment is up is because the CRA is going after debtors more aggressively.

Ottawa signals end is near for COVID-19 pandemic supports for businesses

The 2021 and 2022 federal budgets directed more money to the CRA to expand compliance teams and collect more tax revenue. For example, this year’s budget gave the CRA an extra $1.2-billion over five years to fight various forms of tax evasion, with an expectation that $3.4-billion in tax revenue would be recouped. And the 2021 budget said the CRA would step up audits of large companies where their risk-assessment models judged a higher likelihood of non-compliance.

Scott Terrio, manager of consumer insolvency at Hoyes, Michalos & Associates Inc., said he has seen the CRA step up enforcement activity on his small-business clients in recent months.

He said the CRA was moving back to its prepandemic tax-collection mode, as opposed to the “giving” mode the agency was in during shutdowns as it gave out billions of dollars in individual benefits and business subsidies.

He said he is now seeing far more clients in debt who have had the CRA freeze accounts or garnishee wages.

“If you owe, you’re on CRA’s radar these days,” Mr. Terrio said.

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