Canada Revenue Agency struggling to put a lid on tax fraud

The Globe and Mail

KATHRYN BLAZE CARLSON 

It is a simple scheme that netted a Brampton, Ont., man’s clients thousands of dollars, all on the backs of law-abiding Canadians.

His crime was this: As a tax preparer from 2005 to 2010, Adegboyega Adenekanad Adebukunola filed $858,897 in fake donations on 129 returns, reducing his clients’ tax bill by a total of $245,602.

The case represents a tiny fraction of the revenue lost to false receipting, but it offers a fresh glimpse into a fraudulent enterprise that has cost Ottawa hundreds of millions of dollars over a decade. Because of people like Mr. Adebukunola and his clients, millions of Canadians filing returns next month will shoulder an unfair tax burden and suffer from fewer dollars flowing into federally funded programs and social services.

The Harper government has sought to boost revenues without raising taxes since 2006, introducing dozens of tax-fairness measures expected to bring in more than $2-billion by 2015. Last week’s budget was no exception – its fiscal outlook relies on raking in billions by closing loopholes and pursuing cheats more aggressively. Still, Finance Minister Jim Flaherty’s plan sent mixed signals to the Canada Revenue Agency: It will get $13-million annually to track international financial transfers and pursue fraudsters scamming its R&D tax credit program, but it is also the target of fresh cuts, taking a hit of $60-million annually on top of previous cutbacks.

And while the CRA is getting sharper teeth, its new-found authority will be limited. If the agency suspects people failed to pay their due taxes, it can now collect half of the disputed amount while the case is tied up in court. But that new deterrent applies only to charitable-donation tax shelters and it remains to be seen whether it will some day extend to unpaid taxes tied to fake receipts.

In charity lawyer Mark Blumberg’s view, one bright light from the latest budget is what was missing: Though it introduced a new first-time donor’s “super credit” that will increase the value of a receipt by 25 per cent (once per couple, and only up to $1,000), there are no other donation incentives. And that means there are no new financial incentives to file fake receipts.

After Mr. Adebukunola’s arrest in the United States on an international warrant, he pleaded guilty to tax fraud this month and was sentenced to house arrest. There are other cases: In October, 2012, for example, Penelope Donick was sentenced to one year in jail and a $200,000 fine after the CRA discovered she had filed $4-million in falsified receipts across 269 fraudulent returns; before her, there was Ambrose Danso-Dapaah and his estimated $39-million in fake charity receipts.

“Anyone with a computer and a printer at home could do this,” Mr. Blumberg said. “Anyone can, in about 15 minutes, create an official donation receipt for income tax purposes for any charity.”

Canada’s 86,000 charities issued $13-billion in receipts for the 2011 tax year. Ever since 2007, the CRA has focused on combatting charity-gifting tax arrangements and tackling this other lesser, but far simpler, scheme involving fraudulent donation receipts. In a newsletter last year, the CRA listed fake receipting as among Canada’s top-five tax scams.

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