The 2025 federal budget introduced a measure to combat carousel fraud schemes in Canada. Experts in tax fraud have praised this long-overdue proposal, highlighting the necessity to address the issue of scammers exploiting the Canada Revenue Agency (CRA) for bogus tax refunds.
The legislation aims to thwart carousel schemes, where fake companies collaborate to falsely claim refunds on goods without paying taxes. By implementing a reverse charge mechanism, the government seeks to align Canadian regulations with European standards to prevent fraudsters from manipulating the tax system for personal gain.
Recent investigations have revealed that the CRA may have lost hundreds of millions of dollars to carousel schemes. Despite the agency’s acknowledgment of the problem, there is a lack of clarity on the exact amount misappropriated through fraudulent activities. However, the CRA has identified over $1.1 billion linked to carousel schemes between 2017-18 and 2022-23.
In response to mounting concerns, the CRA established a “carousel scheme task force” in October 2023 to address the issue. The Department of Finance also collaborated with the CRA to introduce the reverse charge mechanism, initially focusing on the carbon emission trading industry.
While the government has taken steps to combat fraud in specific sectors like telecommunications, critics argue that broader industry coverage is necessary to effectively combat carousel schemes. They emphasize the importance of swift and decisive action against criminals exploiting tax loopholes, similar to measures implemented in European countries.
Moving forward, experts recommend enhancing investigative efforts and transitioning from civil to criminal proceedings to hold perpetrators accountable for defrauding the Canadian tax system. By adopting comprehensive measures and strengthening enforcement, authorities can deter fraudulent activities and safeguard public funds effectively.