Question Period Note: CAROUSEL SCHEMES

What is the Canada Revenue Agency doing to combat aggressive Goods and Services Tax/Harmonized Sales Tax (GST/HST) tax planning?

• The Canada Revenue Agency (CRA) remains committed to combatting aggressive GST/HST schemes that circumvent the spirit of Canada’s tax laws.

• The carousel scheme involves GST/HST registrants colluding together to claim unwarranted refunds to intentionally avoid complying with our tax laws.

• Previous budget investments in business intelligence, auditors, and data analytics tools will continue to allow the CRA to better target potential areas of non-compliance.

• Building on a strong international network, the CRA’s approach is responsive to lessons learned by other countries who face the same challenges.

• The CRA identifies approximately $1.5 billion each year in unwarranted GST/HST refunds and rebates.

• The confidentiality provisions of the Excise Tax Act prevent the CRA from discussing specific taxpayer information and ongoing audits or litigation.

• The CRA continues to work with partners in Canada and internationally to develop innovative solutions to improve our compliance approaches to address these schemes.

The Canada Revenue Agency (CRA) remains committed to combatting aggressive Goods and Services Tax/Harmonized Sales Tax (GST/HST) arrangements. The scope of non-compliance in these arrangements covers a spectrum from deliberate misrepresentation to elaborately coordinated schemes that erode the tax system.

While most Canadians are compliant, there are individuals and groups that use aggressive schemes to obtain unwarranted GST/HST refunds. The one seen the most often, known as carousel scheme, occurs when GST/HST registrants collude together to claim unwarranted refunds, intentionally avoiding complying with tax laws.

The CRA is combatting all such instances using the appropriate examination or investigation tools, which include civil audit powers to review and validate reported transactions, or criminal investigative powers that address activity which falls into the category of criminal behaviour. While heightening its focus on audit and enforcement activity, the CRA continues to expand business intelligence and data analytics tools to identify and address intentional non-compliance as early as possible.

Through government investments in Budgets 2016, 2017, 2018 and 2021, the CRA received approximately $425.7M, which has been used to staff additional resources to combat GST/HST schemes and enhance risk assessment processes to stop unwarranted GST/HST refunds and rebates before they are paid. Additionally, the investments in new technology, machine learning and artificial intelligence support the Canada’s Digital Government Strategy and make compliance easier for compliant registrants by focusing CRA’s attention on the riskiest returns and transactions.

Carousel and missing trader schemes are a global phenomenon that has been prevalent in other tax jurisdictions for several years. To ensure it is well positioned and responsive to these constantly evolving schemes, the CRA continues engaging with international partners to share data and intelligence, as well as information and best practices. The CRA makes investments in its processes for early detection and develops and refines its data analytics and risk assessment tools to respond to threats in real time.

The CRA’s compliance activities are identifying over $1.5 billion annually from being paid out to businesses attempting to claim unwarranted refunds and rebates. The CRA also avoids challenges down the road in recouping refund that should not have been paid. Since 2017-2018, more than $1.1 billion has been identified through audits targeting these schemes. Additionally, with more than 70 files related to GST/HST schemes currently in the various stages of litigation, the CRA remains vigilant.

UPDATE TO THE QPR OF JANUARY 25, 2024