Will We See More Bars And Resto Bars File For Bankruptcy In 2016?Stephan V. Moyneur
As of February 1st 2016, bars and resto bars will be required to generate bills for each transaction by using a sales recording module (SRM). Started on September 2nd 2015, the implementation of SRMs will continue until January 31st 2016.
This measure was initiated by Revenu Québec in order to prevent tax evasion and recover millions of dollars of unpaid taxes. The organisation thus intends to reduce tax losses by 55% caused by poor bookkeeping practices.
Bars and resto bars forced to convert to follow same rules as restaurants
This measure, which will affect bars and resto bars as of February 1st 2016, already applies to restaurants. In force since November 1st 2011, it has allowed Revenu Québec to recover 76 million dollars annually.
In this case, there will be fewer businesses affected by this process than in 2011. However, its implementation may prove to be more difficult. Peter Sergakis, President of the Union of bar owners of Quebec (UBOQ), states that the officials who initiated these plans are unaware of how a bar operates. Mr. Sergakis was mainly referring to the particular interactions between customers who, generally in a standing position, move around freely.
Should we expect more bars and resto bars to file for bankruptcy?
Last May, Revenu Québec sent some information about mandatory billing in the restaurant sector to the Conseil des Syndics de faillite du Québec. This information included specific instructions on the processing of SRMs in bankruptcy cases.
It was the first time that this organization provided the Conseil des Syndics de faillite du Québec with such a guideline. Why? Because Revenu Québec expects that an abnormally high number of bar and resto bar operators will go bankrupt in 2016. But, will this actually be the case?
- First, as far back as one can remember, the Food Services sector is one of the three economic sectors experiencing the highest number of insolvencies each year. The other two are the construction and the retail trade sectors.
- Statistics from the Office of the Superintendent of Bankruptcy Canada suggests that the implementation of this measure did not have an important impact on restaurant operators. In 2012, 381 cases of insolvency were recorded in the Accommodation and Food Services sector. That’s only 24 more cases than before the implementation of the SRMs in 2011.
It is therefore rather difficult to state confidently that the Revenu Québec measure aimed at bar and resto bar operators will lead them to bankruptcy. An increase in bankruptcies is certainly possible, but other factors must be taken into account.
For example, insolvency cases have continued to increase since 2012. They went from 381 in 2012 to 407 in 2013, and then up to 452 in 2014. It is undeniable that the economic slowdown had an impact on the budget people allocated to entertainment. As it is quite often the case in such circumstances, restaurants and bars suffer the consequences of this slowdown.
Fines and tax debts
Compliance to the law and remitting to Revenu Québec the Québec sales tax (QST) collected should not lead anyone to bankruptcy. However, not complying to such requirements may lead to tax debts and fines and, ultimately, to bankruptcy.
To avoid fines, bar and resto bar operators will have to comply to the following rules:
- generate their bills using a SRM;
- use their SRM as soon as it is activated;
- without any delay, enter the payment mode used by their clients in the sales recording system (SRS) connected to an SRM to make sure the data is recorded;
- keep the security seal intact and notify Revenu Québec in the event it is damaged.
Sanctions for non-compliance are the following:
- a $300 penalty;
- a $2,000 to $100,000 fine or a fine combined with a maximum of six months in prison;
- security for maintaining a registration certificate (under the Tax Administration Act);
- suspension or revocation of the registration certificate (under the Tax Administration Act).
Furthermore, there are specific rules for reprinting bills. A bar or resto bar operator who does not comply with the rules may be subject to a fine of up to $25,000.
Recourses available to debt-stricken bar and resto bar operators
With some help, a bar or resto bar operator facing financial problems may get back on the path to profitability.
The notice of intention, proposal and restructuring are popular solutions given the numerous advantages they offer. In some circumstances, it may even be possible to write off tax debts.
On the other hand, all fines will have to be repaid since penalties are non-dischargeable debts.
It is reassuring to know that regardless of the magnitude of the situation, the professionals at Ginsberg Gingras are always ready to help. Whether the time has come to propose a better solution to a tough financial situation or to provide simplified explanations of the law, you can always rely on us.
SRMs in bars and resto bars: important dates
September 2nd 2015 – Starting date for the implementation of SRMs in bars and resto bars.
November 30th 2015 – Deadline to be eligible to a higher amount of subsidy under the subsidy program for the installation of a SRM.
January 31st 2016 – Last day to install SRMs in bars and resto bars.
February 1st 2016 – First day of mandatory billing measures with a SRM.