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New data reveals Canada Revenue Agency has gone after very few companies for abusing a COVID wage subsidy program that acted as a “massive wealth transfer”
The Canada Revenue Agency (CRA) has penalized only 185 out of 460,060 companies that received funds from a controversial pandemic support fund, figures released to The Breach reveal. The Canada Emergency Wage Subsidy (CEWS) program paid out $101 billion to companies and was widely criticized for lax eligibility that turned it into a corporate cash cow.
Although the funds were supposed to protect jobs, many companies used them to pad their profits and pay large dividends and bonuses to executives or shareholders. Despite pledges from the Finance Minister’s office to crack down on the abuse, with threats of full repayment and even prison time for fraud, only 185 companies have now been issued “gross negligence penalties.”
According to the CRA’s website, these penalties would force companies to pay back just half of the misused funds. The CRA refused to disclose to The Breach how much money has to date been repaid, and by whom.
As the agency has gone easy on companies that cashed in on the program, they are simultaneously pushing over a million Canadians to repay their pandemic income assistance. The $2000-a-month Canada Emergency Response Benefit (CERB) was a lifeline over the first years of the pandemic, helping many low-income Canadians buy food and pay rent.
Economists, tax justice organizations, and politicians say the government’s enforcement of the two programs show a clear double standard and pro-corporate bias.
“The CRA has been happy to go after CERB recipients that didn’t meet the guideline of making $5000 the prior year, even though these are very low income households,” said David Macdonald, an economist with the Canadian Centre for Policy Alternatives. “But they don’t have the same vigour for businesses.”
The agency has been sending out notices to Canadians alerting them of the debts on their CRA accounts, and in some cases has been clawing back current EI payments to recoup their debts. Racialized people were disproportionately represented among the recipients of CERB, making up 41 per cent of those who accessed the program, according to Statistics Canada.
“The absurdly low number of companies penalized for misuse is either evidence of how poorly designed the program was, or evidence that the government has chosen to just laugh off the misuse,” said D.T. Cochrane, an economist with Canadians for Tax Fairness.
Cochrane says the “massive wealth transfer” shows little has changed since a 2015 report produced by his organization found that the CRA puts a greater priority on cracking down on small-time tax violations than it does on bigger, more lucrative players.
An Auditor General report from 2018 concluded that the agency is more lenient with medium, large, and international enterprises than individual Canadians. The Department of Finance did not provide a comment in time for publication.
A “Massive transfer of wealth”
Despite growing criticism of the CEWS through the pandemic, the Liberal government repeatedly extended it and eased the eligibility requirements.
The government paid up to 75 per cent of employees’ wages, if companies could show a sufficient drop in revenue over a year or month-long period.
The government did not exclude large profitable corporations from receiving it, block dividend payouts or hikes to executive pay, or require companies to maintain staff levels, like other countries did.
Corporations like Imperial Oil, Rogers, and Corus Entertainment received millions from CEWS while simultaneously hiking dividends.
Companies like Air Canada and Bell took the subsidy and still laid off workers.
According to a report by Macdonald, more than a third of the companies headed up by Canada’s 100 top-paid CEOs benefited from the CEWS.
Since phasing out the program in October 2021, the government has never released a detailed accounting of how much CEWS money distributed to businesses in fact went to saving jobs.
That might be because the “wage subsidy” was one in name only, Macdonald said.
Although Finance Minister Chrystia Freeland told the House of Commons finance committee in March 2021 that “legally, the wage subsidy can only be used to pay employees” and that “it can’t be used for any other purposes,” no such restriction actually existed.
“There was a big gap between the ‘letter of the law’ and the ‘spirit of the law,” Macdonald said. “There was no requirement that the subsidy be used to subsidize wages.”
“The CRA can go after a business that was intentionally fraudulent and made up employees in order to get the subsidy. But it’s a totally different thing if companies used the funds within the bounds of the designed law. There was nothing criminal about taking the money and laying off workers and paying your executives.”
While small and medium-sized businesses did access the program, at least 4000 claimants belong to large corporate groups with at least $600 million in assets, according to a study by University of Toronto economics professor Michael Smart.
Based on an analysis of employment data, Smart determined that the government spent roughly $188,000 a year per job.
“Most jobs supported by CEWS subsidies would still exist even if the subsidy were eliminated,” the study concluded. “If CEWS funds are not saving many jobs, that means they end up instead in business revenues, and maybe even profits.”
Few penalties, minimal details
The CRA began auditing the CEWS program in the summer of 2020.
But by April of 2021, it still hadn’t penalized a single company.
With controversy swirling following growing revelations of abuse, the New Democratic Party demanded the Liberal government claw back CEWS from corporations that had misused the funds, with Liberals MPs like Nate Erskine-Smith joining the chorus of criticism.
In response to the outcry, the Liberals tabled legislation in 2021 that claimed to force eligible public companies to repay their CEWS.
But the so-called “executive compensation repayment rule” was convoluted and applied to only a fraction of the recipients over a narrow period of time, Macdonald said.
“It was hard for companies to run afoul of this rule,” he said.
The CRA refused to disclose any financial details to The Breach about its audits and penalties, citing its need “to respect the confidentiality provisions of the Acts we administer.”
While only 388 of the 460,060 recipients were publicly-traded companies required by law to report their financials, Macdonald says the CRA could still investigate how the others used the cash.
“That’s outside the scrutiny of the public, but not the government,” he said. “The government could do a rigorous analysis of how many jobs were saved.”
A CRA spokesperson explained that, based on the audits completed, the agency has to date only assessed “gross negligence penalties” against 185 companies.
“Audits are on-going and cases pertaining to anti-avoidance penalties and promoter penalties can be challenging and time-consuming,” the spokesperson said. “As with any compliance audit program, the less intricate audits are generally among the first to be concluded and more complex cases take longer.”
“While the horse may have left the barn” on recuperating CEWS funds gobbled up by companies, Cochrane says it’s not too late to level the playing field.
“We can still improve the government balance sheet by raising the corporate income tax rate from its obscene historic low, raising the capital gains inclusion rate, and creating a tax on windfall profits.”
