Criminals find GST credit an easy mark for fraud

Tuesday, November 19th, 2002


TORONTO (CBC) — A fraud involving the GST is costing Canadian taxpayers millions of dollars a year, a CBC News investigation has found.

The swindlers are targeting the GST input refund, which pays a seven per cent refund on sales to foreign countries.

The refund was meant to keep Canadian companies competitive in the international marketplace, but because the government doesn’t usually check on the validity on the claims, the refund is an easy mark for criminals.

In the scam, phony companies are set up and bogus exports, usually to the United States, are claimed to the government. The government automatically reimburses the companies for seven per cent of the amount claimed for exports abroad.

Because cars are big-ticket items, auto dealerships are often used in this sort of scam.

CBC News contacted a man convicted in 1999 of defrauding the government of $400,000 in just six months. He agreed to talk about his case on condition that he not be identified.

“You get an input tax credit form every month, you fill in how much GST you’ve actually paid out in products. You then send it in to the government and the government sends you back a refund cheque,” said the source.

University of Victoria economist David Giles, who specializes in Canada’s underground economy, said the take for these scams has been enormous ever since the GST was introduced.

“A figure of a billion dollars for this sort of activity is more than reasonable,” said Giles.

Giles said it’s almost impossible to track and reclaim that money once the cheques have been cashed, because the funds are kept offshore or the people involved declare bankruptcy.

“In many cases, even when people are taken to court, it’s not even possible to really ascertain how much money was lost in the first place. Recovering the money at a later date is both very expensive and almost impossible,” said Giles.

On Tuesday, a court case begins in Milton, Ont. involving seven people in Oakville accused of cheating the government out of $25 million in false refunds.

The arrests were the result of a ten-month investigation into phony car deals and paper companies that received GST refund cheques from the government.

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