'Here we go again' after CRA pays out another bogus $5M income tax refund, agency insider says

The Canada Revenue office has paid come out another $5-million return to a bingle taxpayer, this clip to a B.C. Businesswoman, despite what it now alleges was a bogus return that included "illogical" and "falsified information."

Two months after releasing the funds, a CRA affidavit shows the agency believed it had made a huge mistake after realizing it had failed to examine the legitimacy of the requested refund — even though it had been red-flagged for manual review.

"Here we go again. I mean, how many times do you have to learn a lesson?" said a source familiar with the inner workings of the agency who was granted confidentiality because they are not authorized to discuss the case publicly.

"We clearly don't have the right people or we don't have the right checks and balances."

Wallace did not return emails or phone messages left by the fifth estate/Radio-Canada at her hemp company in Silverton.

One of the cases involved another potentially fraudulent $5-million refund.

Still, the payment to Wallace was issued six months after then revenue minister Marie-Claude Bibeau and then CRA commissioner Bob Hamilton were called in front of a parliamentary committee to answer questions about fifth estate/Radio-Canada revelations that the agency had repeatedly paid out millions of dollars to recipients claiming bogus refunds.

Documents filed by the CRA in Federal Court in January suggest that Wallace's claim was highly implausible from the start.

According to agency auditors, Wallace falsely claimed she had earned $9,999,999 in foreign income in 2023 and, incredibly, that she had paid that same amount in Canadian taxes — which would mean an "illogical" tax rate of 100 per cent.

The CRA says that based on that "falsified information," Wallace then allegedly requested a refund of almost $5 million on the overpayment — even though the agency now believes no taxes were ever paid and she never earned the $10 million to begin with.

Court records say auditors later became suspicious after realizing Wallace was claiming status both as a resident and non-resident of Canada. Wallace, they noted, submitted a vague, two-word explanation in tax forms for the claimed foreign income: "United Nations."

Despite questionable statements in the return, an assessor approved the refund request in April 2025.

The file was then quickly greenlit by a second reviewer and a payment of $4,958,716.63 was released to Wallace, the CRA stated in Federal Court records.

The confidential source, who has a long experience in dealing with complex cases at the CRA, blamed "multiple layers of failure" for the Wallace case and said it is reminiscent of previous failures exposed by the fifth estate/Radio-Canada. 

An expert in Canadian fiscal law, Raphaël Clément, said he is also baffled that Wallace's return was approved by the CRA despite the obvious incongruities.

"I'm concerned about this case," said Clément, a tax lawyer at the HEC Montréal business school who has examined the evidence presented in Federal Court. "Why wasn't it [caught] in the first place by the assessor and by the reviewer? How is it possible that she was able to get a refund even with those forms?"

"Despite these measures, tactics evolve, prompting the CRA to remain vigilant and consistently enhance its processes," said CRA spokesperson Sylvie Branch.

The nearly $5-million refund at the heart of the dispute was deposited in Wallace's bank account on May 1, 2025.

More than two months later, the CRA noticed the "outlier" tax refund and took a third look at the file, according to the court records. 

"Upon review by the senior program officer at [refund examination headquarters], it was determined [that one of the forms on file] was invalid, and the resulting $4.9-million refund from the erroneously allowed slip was unwarranted," the CRA said in a court document. 

After the review, the CRA determined it was owed a full refund, plus interest and penalties, which brought Wallace's total debt to the CRA to $7.9 million.

In January of this year, the CRA went to Federal Court in a successful bid to obtain a "jeopardy order" to freeze Wallace's assets in Canada without telling her beforehand. The procedures to recoup the owed amounts are ongoing.

In an affidavit to justify the request, CRA official Brandon Kuo said he was of the view that Wallace "will not willingly pay the tax liabilities and return the refund, and will make efforts to avoid the collection efforts of the CRA."

According to the court records, the CRA was able to freeze $4.2 million in her bank accounts, or about 54 per cent of the amount that Wallace is said to owe to the CRA.

The CRA told the Federal Court that Wallace had submitted another tax return "using similar documentation" after receiving the $5-million payment, but that it had not been approved.

In reply to CRA's allegations in court, Wallace said there was no indication she intended to liquidate the funds in her bank account or to transfer any amount abroad. As such, she asked for the freeze to be amended to allow her "to conduct limited ordinary course business operations."

"To my knowledge, no assets have been concealed, dissipated or removed from Canada," Wallace said in an affidavit dated March 8. "I have not liquidated assets in response to the reassessment. I have not attempted to move funds outside Canada. I have not attempted to conceal property."

Wallace is seeking access to her bank accounts to conduct "bona fide ordinary-course operations," but the Federal Court has yet to rule on the matter. 

Clément said that regardless of Wallace's intentions, he cannot understand why the CRA would issue a refund of this size without checking that the tax had been paid in the first place.

"It's a bit surprising that someone looked at it and did not realize [there was a problem]. So I'm wondering: Is there a lack of proper funding at the CRA level? Is it someone looking at this and processing it automatically? Is there a lack of training?" 

Clément said that traditionally, some taxpayers have tried to avoid paying the full amount of taxes they owe to the government. He said there now seems to be a trend under which people file suspicious returns, using obscure provisions of the Income Tax Act, to obtain bogus tax refunds.

"We're talking about relatively complex and sophisticated schemes. I'm surprised that this kind of fraudulent scheme actually works or that anyone would even think of doing it," said Clément, without referring specifically to Wallace's case.

Conservative MP Gérard Deltell criticized the CRA for approving large refunds with minimal verifications, even as it runs extensive checks on much smaller amounts. 

"We've reached the point where they don't even conduct a serious assessment for cases involving millions of dollars, but they do harass hundreds or thousands of Canadians over a few thousand dollars," said Deltell, his party's critic for the CRA.

If you have tips on the CRA or this story please email harvey.cashore@cbc.ca or daniel.leblanc@cbc.ca or call 416-526-4704.

the fifth estate

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