It is a simple scheme that netted a Brampton, Ont., man’s clients thousands of dollars, all on the backs of law-abiding Canadians.
His crime was this: As a tax preparer from 2005 to 2010, Adegboyega Adenekanad Adebukunola filed $858,897 in fake donations on 129 returns, reducing his clients’ tax bill by a total of $245,602.
The case represents a tiny fraction of the revenue lost to false receipting, but it offers a fresh glimpse into a fraudulent enterprise that has cost Ottawa hundreds of millions of dollars over a decade. Because of people like Mr. Adebukunola and his clients, millions of Canadians filing returns next month will shoulder an unfair tax burden and suffer from fewer dollars flowing into federally funded programs and social services.
The Harper government has sought to boost revenues without raising taxes since 2006, introducing dozens of tax-fairness measures expected to bring in more than $2-billion by 2015. Last week’s budget was no exception – its fiscal outlook relies on raking in billions by closing loopholes and pursuing cheats more aggressively. Still, Finance Minister Jim Flaherty’s plan sent mixed signals to the Canada Revenue Agency: It will get $13-million annually to track international financial transfers and pursue fraudsters scamming its R&D tax credit program, but it is also the target of fresh cuts, taking a hit of $60-million annually on top of previous cutbacks.
And while the CRA is getting sharper teeth, its new-found authority will be limited. If the agency suspects people failed to pay their due taxes, it can now collect half of the disputed amount while the case is tied up in court. But that new deterrent applies only to charitable-donation tax shelters and it remains to be seen whether it will some day extend to unpaid taxes tied to fake receipts.
In charity lawyer Mark Blumberg’s view, one bright light from the latest budget is what was missing: Though it introduced a new first-time donor’s “super credit” that will increase the value of a receipt by 25 per cent (once per couple, and only up to $1,000), there are no other donation incentives. And that means there are no new financial incentives to file fake receipts.
After Mr. Adebukunola’s arrest in the United States on an international warrant, he pleaded guilty to tax fraud this month and was sentenced to house arrest. There are other cases: In October, 2012, for example, Penelope Donick was sentenced to one year in jail and a $200,000 fine after the CRA discovered she had filed $4-million in falsified receipts across 269 fraudulent returns; before her, there was Ambrose Danso-Dapaah and his estimated $39-million in fake charity receipts.
“Anyone with a computer and a printer at home could do this,” Mr. Blumberg said. “Anyone can, in about 15 minutes, create an official donation receipt for income tax purposes for any charity.”
Canada’s 86,000 charities issued $13-billion in receipts for the 2011 tax year. Ever since 2007, the CRA has focused on combatting charity-gifting tax arrangements and tackling this other lesser, but far simpler, scheme involving fraudulent donation receipts. In a newsletter last year, the CRA listed fake receipting as among Canada’s top-five tax scams.
Though the agency said it could not provide recent numbers on the scope of the problem, a spokesperson confirmed the figures obtained by The Globe and Mail from a CRA presentation to the Ontario Bar Association in 2011: Between 2004 and 2010, about 135,000 donors together claimed hundreds of millions in fake donations. And those are just the false receipts the government knows about.
“It probably goes way under the radar,” said Bri Trypuc, head of donor advisory at Charity Intelligence Canada. “It’s very difficult to track down.”
As more Canadians file their returns online, fewer receipts are bound for CRA scrutiny because they are only submitted upon request – a dynamic that may have opened the door to more fraud, said Cathy Barr, senior vice-president of Imagine Canada, which supports charities. This year, the CRA is requiring that all tax preparers filing 10 or more returns do so online.
Sometimes fake receipts stem from unwitting charities whose public registration numbers and logos are put to fraudulent use, but often, the fraudster is at the helm of one or more charities. Mr. Danso-Dapaah, for example, was the director of several charities from which the fake receipts flowed. According to the CRA, one of his charities reported $2,203,364 in receipts on his 2004 filing, but seized records showed the charity issued $21,555,427 in receipts to 3,700 donors that year.
Typical of fake receipting cases, Mr. Danso-Dapaah charged a 10-per-cent fee based on the receipt’s face value. So for $1,000, clients got a $10,000 receipt that would offset their taxes by about 40 per cent of the “donation,” Mr. Blumberg said.
The government has considered moving charities toward electronic receipting, a more transparent system where donation claims could be compared against charities’ reported receipts, but Mr. Blumberg said that would prove troublesome since thousands of charities already struggle to meet compliance requirements. He would rather see the RCMP help investigate charity fraud just as it does white-collar crime, but a police spokesperson said “fraudulent charities are dealt with by the Canada Revenue Agency.” CRA spokeswoman Mylène Croteau said that between 2007 and 2012, an agency initiative has led to the conviction of 15 tax preparers who falsified receipts.
And since Mr. Danso-Dapaah pleaded guilty in 2008, the CRA has successfully pursued several of his clients for thousands in owed taxes. To the dismay of a federal tax court judge, one woman benefited from filing false charitable receipts all the while “happily pocketing employment insurance and other federal benefits financed by honest taxpayers.”