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CRA could have a 'field day' with questionable COVID-19 claims, investigators warn

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Canada's underground economy accounts for more than $45B annually

University of Ottawa professor Marc Tassé says the Canada Revenue Agency has sophisticated technology at their disposal to check the legitimacy of claims made under COVID-19 relief programs. (CBC)

New federal benefit programs aimed at helping shuttered businesses and people now out of work could pose a dilemma for those who tend to skirt Canadian rules and laws.

Anti-fraud and legal experts warn that anyone making questionable claims during the COVID-19 pandemic are still subject to the Canada Revenue Agency's (CRA) powers — which include the ability to perform audits, take back any money owed, and lay fines and serious criminal charges.

Canada's underground economy accounts for more than $45 billion in annual economic activity, according to the most recent federal statistics.

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"The underground economy is simply people who pay no taxes on transactions, or people who are hiding their transactions elsewhere. It's CRA's number one problem," said David Debenham, president of the Association of Certified Forensic Investigators of Canada.

There's a wide range of people engaging in "under-the-table" activities, said Debenham, like contractors who get paid in cash and don't reveal that revenue at tax time, or wait staff who don't claim tips as income.

'Are they your real losses?'

"Take for example, someone who rents out their basement for cash and doesn't declare it. They do that because they're in a jam and they need the money. Do they go to the tax preparer and declare that loss, because they can no longer rent that apartment because of COVID?" he said.

As a specific example, businesses and organizations can apply for the Canada Wage Subsidy Benefit — but they first must show their revenues fell by 15 per cent in March or 30 per cent in April and May, compared either this time last year or to January and February 2020.

David Debenham, president of the Association of Certified Forensic Investigators of Canada, expects CRA auditors will be busy for years to come as they monitor those who benefit from the new programs. (Submitted)

For those who haven't claimed all their income in the past, that could pose a dilemma, said Debenham.

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"Are they your real losses, or are they the losses based on what you would have declared previously?" he said.

"You're going to have some people who are by force of necessity going to have to declare their entire losses, even if they're risking an audit, and other people who won't."

The current claim system was created to be simple, efficient and based on trust, said Marc Tassé, a professor in both the school of management and law school at the University of Ottawa — and betraying that trust will mean rule-breakers will have to face consequences.

While it may be easy to apply for relief online, the CRA will eventually want supporting documents, Tassé said.

"CRA has a mandate to make sure that everyone pays his fair share of taxes, and with that comes the power to be investigating and to be assessing taxpayers," said Tassé.

'We will not tolerate abuses'

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The government has already warned a punishment has been written into the rules.

When it comes to the wage subsidy program, Finance Minister Bill Morneau warned that any business subsequently found not to have qualified will be required to repay the money.

Those who deliberately abuse the program will face stiff fines of up to 225 per cent of the value of the subsidy — or up to five years in prison.

"This is a huge trust program," said Morneau. "We will not tolerate abuses."

Minister of Finance Bill Morneau says the government will not tolerate abuses of the benefit system. (Justin Tang/The Canadian Press)

CRA's sophisticated powers

CRA has the ability to look at past tax filings and bank accounts, said Tassé, and audit individuals or companies — and their systems are more sophisticated and far-reaching than Canadians might realize.

"Now with artificial intelligence and machine learning, the government has a lot of tools in hand to be able to monitor what's going on," said Tassé.

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"With technology you can do a lot of things, and you can do a lot of tracking that people would not even think could exist."

Close to 10 million Canada Emergency Response Benefit claims have already been filed, while applications begin April 27 for the Canada Emergency Wage Subsidy.

The wage subsidy program alone is worth $73 billion, according to the finance minister.

Debenham thinks these major programs and the subsequent payouts have the potential to keep government auditors busy for years to come.

"It should be a field day for CRA audits for the next four or five years," said Debenham.

"I expect CRA to be the leading employer ... for the next couple of years as their business goes through the roof with audits and prosecutions."

