CRA duped in $40M bogus tax refund case. Why did it take a big bank to notice?

In the summer of 2023, a Canadian taxpayer logged into their Canada Revenue Agency (CRA) account, fraudulently amended past tax returns, and falsely claimed over $40 million in refunds.

According to sources, the CRA authorized the payments without verifying the newly submitted tax slips and started issuing instalments. The scheme may have gone undetected if not for CIBC, which raised the alarm after noticing a suspicious $10 million deposit from the Government of Canada into a customer’s account.

The bank contacted the CRA to confirm the transaction, which prompted the agency to realize it had been defrauded, sources said. CBC’s *The Fifth Estate* and Radio-Canada, which conducted the investigation, have kept the sources confidential as they are not authorized to speak publicly.

“The CRA has to clean up its act,” said André Lareau, a tax professor at Laval University in Quebec City. He stressed that the CRA is mandated to “assess and evaluate the veracity” of tax returns and cannot simply refund amounts claimed, especially when taxpayers amend multiple returns.

Calls for Investigation

On Monday, opposition parties demanded probes after the report revealed that hundreds of millions in fraudulent refunds had been issued and that tens of thousands of CRA accounts had been compromised since 2020.

Following a request from Conservative MP Adam Chambers, the federal privacy commissioner’s office confirmed it would investigate whether the CRA complied with the Privacy Act. Chambers also called on Revenue Minister Marie-Claude Bibeau to involve the RCMP.

“Over $190 million has been paid out to scam artists due to privacy breaches at Revenue Canada. Will the minister call in the RCMP to address this breach so taxpayers can be reimbursed?” Chambers asked.

The investigation by *The Fifth Estate* and Radio-Canada revealed that Canadians have largely been kept in the dark about both the financial losses and the CRA’s inability to detect these schemes early.

Use of the Scheme

Sources indicated that after CIBC flagged the $10-million deposit, the CRA scrambled to recover the funds. However, $4 million had already been transferred to other banks or spent, and the agency had to act fast to prevent another $10 million from being disbursed three days later, along with a $20 million payment scheduled for the following week.

The CRA soon discovered that the scam had been widely used throughout 2023, with other fraudsters also filing fake T4A slips. According to sources, the CRA had few, if any, policies to verify the authenticity of large refund claims, even when they involved tens of millions of dollars.

On Monday, the CRA acknowledged in an email that it had uncovered the use of “false T4A slips” leading to “unwarranted refunds.” It said it was aware of the participants in the scheme and had taken “swift action” to halt the fraud. The agency also stated it is pursuing “every enforcement action” to recover the misappropriated funds.

The scam was remarkably simple, sources said. The fraudster filed T4A slips online, amending past tax returns to claim deductions without any new income or taxes being paid. In response to the incident, the CRA reportedly changed its policy to require additional scrutiny for refunds exceeding $50,000.

CIBC declined to comment on the matter.

'Canadians Deserve Answers'

NDP revenue critic Niki Ashton described the breaches and fraudulent payouts as “shocking,” calling for a parliamentary inquiry into the CRA’s handling of tax fraud. “Canadians deserve a full account of what went wrong, how this happened, and how we can prevent it from happening again,” Ashton said.

Speaking outside the House of Commons on Monday, Bibeau acknowledged that fraud is “unacceptable” but maintained that the CRA has “a robust system.” She noted that many scams rely on personal information obtained from sources outside the CRA.

“We are continuously working to improve the system with better detection and blocking measures,” Bibeau said, adding that affected taxpayers are informed “as soon as possible.”

In its statement, the CRA emphasized that it takes the abuse of tax laws seriously. “The trust that individuals and businesses place in the CRA is the foundation of Canada’s tax system.”