‘This was totally preventable’: Proposed rules aim to stop CRA from paying out more bogus refunds

When the federal government tabled its 2025 budget last month, it included a proposal that tax fraud experts say is long overdue — if also a belated acknowledgement that the Canada Revenue Agency has been repeatedly duped into paying out untold millions in bogus tax refunds to scammers.

The proposed legislation would help prevent a type of fraud known as a carousel scheme from succeeding on Canadian soil and comes on the heels of an investigation by the fifth estate that found the federal treasury has repeatedly lost millions of dollars to international crime networks in the past several years.

“Finally, the CRA has faced up and admitted its tax system has a major issue that it knew about many years earlier,” said Mike Cheetham, a British expert on carousel schemes consulted by the fifth estate who has spoken before the U.K. Parliament on the subject. 

“Why they have taken so long to try and correct the system defies belief,” he said. “This was totally preventable from the start and the CRA has a duty to protect the taxpayers’ revenue.” 

The federal government’s proposed legislation in its November budget appears to bring Canadian rules about some taxable commodities in line with European fraud prevention norms.

The proposed legislative fix, known as a reverse charge mechanism, is designed to prevent fraudsters from claiming bogus GST and HST refunds.  

Carousel schemes involve a series of fake companies working together to make it look as if goods are being sold and resold, with the last company in the chain claiming a refund — even though no tax was paid in the first place.   

The reverse charge mechanism changes the way GST is paid, removing the ability of the scammers to collect a refund.

A source familiar with the CRA told the fifth estate they believe the Canada Revenue Agency has lost hundreds of millions to carousel schemes. 

The source has been granted confidentiality by CBC News because they are not authorized to speak publicly on these matters.

The agency stated in a recent email that it has  “no systematic way” of adding up exactly how much of the public’s money has been wrongly paid out to fraudsters. 

The agency also said, however, that  “more than $1.1 billion had been identified between 2017-18 and 2022-23” involving carousel schemes. It is not clear what “identified” means in this case.

Still, a fully written but unreleased Nov. 8, 2023, CRA media statement obtained though an access to information request shows that officials at the agency set up what they called a “carousel scheme task force” in October 2023, soon after the fifth estate began investigating why the federal treasury was losing hundreds of millions to networks of scammers.

Internal CRA email exchanges show Bob Hamilton, the CRA commissioner, was also consulted as the agency and Department of Finance co-ordinated how to respond to those questions.