Leaked files expose CRA error: Millions in tax refunds issues without proper review

Leaked documents have revealed that the Canada Revenue Agency (CRA) mistakenly issued millions of dollars in refunds through automated systems, sparking calls for an independent investigation into potential systemic failures.

The CRA is currently in Federal Court seeking to reclaim a $4.99-million refund it mistakenly paid to Distribution Carflex Inc., a financially struggling auto body company based in Quebec’s Laurentians region. The payment, made in 2023, was processed automatically because it fell just below the $5-million threshold that would have triggered a manual audit.

According to internal documents obtained by the media highlights weaknesses in the CRA’s electronic refund system—where multi-million-dollar payouts can be made without any human review. A confidential source familiar with the agency’s operations said that “there should be eyeballs on that transaction, but there isn’t,” adding that this loophole leaves the system vulnerable to abuse.
Court filings show that CRA officials are trying to trace the missing funds, alleging that Carflex had no legitimate claim to the refund. The company’s owner, Yvan Drapeau, reportedly used part of the funds to buy a $2-million luxury condo in Montreal before the remaining money was frozen by TD Bank, which had first raised the alarm about the suspicious transaction.

Sources told CBC that this is not an isolated case. The agency has allegedly been deceived into issuing numerous large refunds due to inadequate oversight and automation gaps. Critics within and outside the agency are urging Ottawa to commission an external probe, arguing that the CRA cannot effectively investigate itself.

Court documents suggest that Carflex’s refund was based on a fabricated $32.9-million capital gain and a follow-up tax return claiming $13 million in dividends—figures that auditors later found to be unsupported by any real payments. Experts say a human review would have caught the discrepancy immediately.

The case has intensified scrutiny of the CRA’s refund thresholds and internal controls, with insiders warning that fraudsters can easily exploit the system by submitting claims just below the manual-review cutoff. As one source put it, “no one is really looking at the vulnerabilities of these automated processes.”

The CRA has declined to comment on the specifics of the Carflex case but insists it is using “all available measures to ensure compliance.”