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Canada Revenue Agency claws back $458 million in CEWs wage subsidies from COVID-19 pandemic following audits

The CRA found cases of aggressive non-compliance among claimants using third parties for application preparation, explains Canadian tax lawyer David J Rotfleisch

Author: David J. Rotfleisch
David Rotfleisch, CPA, JD
David J Rotfleisch, CPA, JD is the founding tax lawyer of and Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law corporate law firm.

THE Canada Revenue Agency has revealed that $458 million in funds distributed to employers through a pandemic-era wage subsidy program have either been denied or adjusted. This decision is a consequence of an ongoing tax auditing process that is not yet complete. The CRA published a report on November 27, 2023, providing detailed insights into its audits of the Canada Emergency Wage Subsidy (CEWS) Program. While the primary focus of the findings pertains to the period ending March 31, 2023, the report also includes more recent figures up to September 29, 2023.

The majority of CEWS claimants denied by the CRA used third-parties for application preparation.

The CEWS program, designed to support businesses during the COVID-19 pandemic, subsidized 75% of staff wages, aiming to encourage companies to retain their employees amid government-imposed shutdowns. The program, which aimed to mitigate the economic impact of the pandemic, disbursed approximately $100 billion in wage subsidies.

Last year, Auditor General Karen Hogan's report raised concerns that numerous businesses receiving wage subsidies might not have been eligible, as their Goods and Services Tax (GST) and Harmonized Sales Tax (HST) filings did not demonstrate a significant drop in revenue. The recent report indicates that the majority of employers receiving the subsidy were largely compliant. Most claim adjustments were attributed to calculation errors and insufficient documentation rather than ineligibility. Out of the $5.53 billion in audits completed by March's end, $325 million in claims were either reduced or denied. Audits that coincided with claims highlighted by the auditor general identified $134.5 million requiring adjustment or rejection, with 14% of these adjustments attributed to insufficient revenue decline. The total amount of claims adjusted or denied reached $458 million by the end of September.

Cathy Hawara, Assistant Commissioner of the Compliance Branch at the CRA, stated in an interview that the results suggest a high overall level of compliance by the majority of employers. She emphasized that even businesses identified by the auditor general demonstrated compliance.

However, the report highlights significant issues with claimants using third parties for application preparation. In 85% of tax audits for such claims, funding was reduced or denied. The CRA found cases of aggressive non-compliance, especially with claimants suspected of using intermediaries knowingly facilitating inaccurate or non-compliant claims. Most of these cases involved small businesses with 25 or fewer employees.

The report notes that, while the focus is on CEWS results, many of the preparer-linked claimants also applied for the Canada Emergency Rent Subsidy, which is now under review. The CRA has imposed over $15 million in penalties related to these files as of September's end. Hawara explained that, while intermediaries, such as accountants, are crucial to the tax system, the tax agency conducts targeted audits to identify third-party preparers potentially skirting the law. She expressed satisfaction with the overall compliance by employers but stressed the importance of addressing identified risks.

The CRA cannot use its tax audit power to gather evidence during a criminal investigation.

The CRA disclosed that some cases resulting from the tax audits have been referred to its criminal investigations program. The audit of the CEWS program is ongoing and is anticipated to continue until at least 2025. When the CRA is engaged in investigating criminal tax evasion, its tax investigators must adhere to the taxpayer's criminal procedural rights as outlined in the Canadian Charter of rights. In a non-criminal inquiry, a CRA tax auditor or investigator typically requests documentation and may imply potential negative consequences for the taxpayer if they fail to comply.

However, in the context of a criminal tax evasion investigation, the taxpayer is safeguarded by the constitutional right against self-incrimination. Consequently, the CRA has established a dedicated unit known as the Criminal Investigations Program to handle such cases. In the course of a criminal investigation, any failure by a CRA tax investigator or auditor to follow the prescribed criminal investigation procedures could result in violations of Charter rights.

If a CRA tax auditor initiates an audit and subsequently opts to transfer the case to a criminal tax evasion investigation, there is considerable flexibility in determining the transition point from a non-criminal tax audit to a criminal inquiry. 

How should a taxpayer dispute the decision if the CRA decides to deny their CEWS claim?

The CRA will send an audit proposal letter to a taxpayer before they wrap up the audit, which typically gives the taxpayer another 30 days to provide additional documents. Once the audit is concluded, the CRA will then issue a notice of reassessment. In that case, the taxpayer must file a notice of objection within 90 days from the date the reassessment was issued. Still, the taxpayer can still file a notice of objection within 1 year from the 90-day deadline, but must submit an extension of time request, which may be denied, to explain why he/she wasn't able to submit the objection within the 90 days deadline.

Can the CRA use its audit power to gather evidence used in a criminal investigation?

The Supreme Court of Canada in R v. Jarvis, 2002 SC 73 emphasized that, although tax authorities possess extensive powers, encompassing both tax audit and criminal tax investigative powers, they must carefully delineate the differences before transitioning from a tax audit to a criminal tax investigation, referred to as crossing the "Rubicon." It is imperative for tax authorities to safeguard taxpayers' rights outlined in the Charter of Rights and Freedoms during this process. Failure to adhere to these distinctions and protect individual rights may lead to the exclusion of evidence under section 24(2) of the Charter, potentially resulting in an acquittal verdict.

David J Rotfleisch, CPA, JD is the founding tax lawyer of and Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law corporate law firm and is a Certified Specialist in Taxation Law who has completed the CICA in-depth tax planning course. He appears regularly in print, radio and TV and blogs extensively.  

With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, cryptocurrency traders, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax audit representation and tax litigation. Visit and email David at

Read the original article in full on Tax Law Canada. Author photo courtesy Rotfleisch & Samulovitch P.C. Title image: iStock (modified). 

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