The Canada Revenue Agency says the data on beer, wine and liquor purchases helps it clamp down on tax dodging in a sector it claims is ripe for it.
“The restaurant industry has been identified as a high-risk sector,” the CRA said in a statement.
“The cash-based nature of the food and beverage sector, in addition to the growing use of electronic sales suppression software within this industry, make it an ongoing area of tax non-compliance concern.”
The tax agency obtained a court order earlier this year allowing it to compel Ontario’s Beer Store to hand over records on every bar, pub, restaurant, nightclub and banquet hall in Ontario licensed to buy commercial quantities of suds.
Every three months, for the next four-plus years, the Beer Store — the province-wide chain run by a consortium of brewers — has to transmit updated figures on those customers’ purchase volumes and dollar amounts.
It’s a renewal of a practice that’s been quietly happening at the Beer Store and the provincially-owned LCBO since at least 2013.
In an email to CBC News on Tuesday, the CRA said it gets the same kind of alcohol-purchase information in some other provinces too, but it didn’t specify which ones. It said it’s looking at possibly obtaining more court orders to be able to get data in every province and territory.
The goal? “To verify compliance” with GST and income tax obligations and to make sure that bar and restaurant owners “have properly reported income and claimed amounts as deductions,” the CRA says in court filings.
Statistics provided by the agency to CBC show its personnel, in conducting 6,190 audits on bars and restaurants countrywide over the last three years, have unearthed $344 million in unreported income and recouped $200 million in tax plus interest and penalties.
Most of that money came from Ontario, which accounted for 3,525 of those audits — leading to $215 million in unreported income and $119 million in recouped tax.
Assume they’re being tracked
Restaurant owners may not be shocked to learn their alcohol purchases are under surveillance, said James Rilett, a vice-president with the industry group Restaurants Canada.
“From the beer and spirits side, generally most operators assume all that’s being tracked because it’s checked so often” by provincial regulatory bodies, he said. In the case of Ontario, inspectors from the Alcohol and Gaming Commission of Ontario visit establishments “quite often” asking to see receipts for beer, wine and spirits to make sure it was legally bought, Rilett said.
But that doesn’t mean bar, restaurant and nightclub proprietors shouldn’t be concerned about the harvesting of their purchase info.
John Clausen, an accountant who has worked with numerous food and beverage businesses in his 40-year-career, said a CRA audit of one of his clients from Hamilton a few years ago showed just how problematic that data can be.
Clausen said the CRA used records from Ontario’s Beer Store to try to gauge what the bar’s revenues should have been, and then claimed his clients were underreporting income. But, he said, the auditor’s math didn’t account for a number of real-world factors.
For instance, bar owners will sometimes place an order from the Beer Store, but when it gets delivered a few days later might change their mind and not take all the cases they ordered — and may even return some they purchased previously. Clausen said those last-minute changes are manually noted by the Beer Store’s delivery drivers but aren’t always accurately recorded in the chain’s central database.
“When we observed the CRA records and compared them to the records that the client had, there were obvious errors,” he recalled.
He said the CRA auditor also didn’t fairly account for things like employees serving themselves free drinks, or “spillage” — the draft beer that gets wasted due to faulty tap lines, improperly poured and then discarded pints, and other losses. Clausen said he found U.S. studies showing those amounts can be significant, up to 30 per cent of a bar’s keg beer, whereas the CRA was only allowing for two per cent for his client.
CRA: Auditors understand realities
Tony Elenis, president of the Ontario Restaurant Hotel & Motel Association, also sounded a note of caution about trying to compute the value of alcohol a bar or restaurant sells from how much it buys from suppliers.
“Sales figures would be hard to discern because prices can change over course of a year, and year to year, and day to day with happy hours or drink specials at certain times,” he said.
The CRA counters, however, that while all these concerns are valid, its auditors are sensitive to the nitty-gritty of running a restaurant or bar. “Reasonable amounts” of spillage “would not be challenged during an audit,” the agency said. Any discrepancies between Beer Store or LCBO purchase data, for instance, and a bar’s own books would only count against the bar when those discrepancies “cannot be explained or substantiated.”
“Finally, auditors are in constant communication with taxpayers as discrepancies come to light during an audit to ensure false assumptions are not made.”