New Zealand tax fraudster penalized for GST fraud

A New Zealand court has ordered Gisborne farmer John Bracken, the country’s largest tax fraudster, and his family to forfeit millions of dollars in assets connected to his crimes, concluding a lengthy legal dispute over whether the property held in a family trust could be retained. Bracken was sentenced in May 2021 to more than six years in prison after being convicted on 39 charges of dishonestly using documents for financial gain.

Through his company, Bracken Enterprises Ltd (BEL), he submitted false invoices totalling more than $133 million between 2014 and 2018, fraudulently obtaining $17.4 million in GST refunds from Inland Revenue. He was released on parole in mid-2024.

Since 2018, police had placed restraining orders on a range of assets tied to Bracken, including eight properties, 10 vehicles, farm machinery, a boat, and other equipment. The properties included two large farms worth tens of millions of dollars, a holiday home near Ōhope valued at $1.75 million, and three residential properties in Gisborne worth about $1.4 million combined.

Police applied for a profit forfeiture order under the Criminal Proceeds (Recovery) Act, arguing that most of the illegal funds—about $13.6 million—had been invested in farm and residential properties held by the Bracken Family Trust. Prosecutors said the financial affairs of Bracken, his company, and the trust were so closely linked that they were effectively indistinguishable. Several assets, including a $1.45 million holiday home and the Burnbrae farm properties valued at $6.9 million, were purchased directly using proceeds of the fraud.

Bracken argued he had not benefited from the fraud because BEL now owed Inland Revenue more than $40 million in taxes, penalties, and interest. However, Justice Dale La Hood rejected this claim, ruling that possible future repayments do not erase the unlawful benefit already obtained.

Although Bracken was removed as a trustee in 2024, the court found he remained a beneficiary and retained practical influence over trust assets. His wife Margaret claimed she had no knowledge of the fraud, but the judge said her failure to question the trust’s rapid financial growth was at least careless.

To balance the hardship faced by family members with the law’s aim of eliminating criminal profits, the court allowed the family to keep the original farm property valued at $3.7 million. The remaining assets will be forfeited, enabling authorities to recover about $13 million of the $17.3 million gained through the fraud.

Canada’s Budget 2025 targets fraudulent GST/HST carousel

Budget 2025 proposes introducing a reverse charge mechanism (RCM) (mainly for certain telecommunications services) to address GST/HST fraud. Under this system, a registered supplier selling specified telecom services to registered resellers would no longer charge or collect GST/HST. Instead, the reseller would be responsible for self-assessing and reporting the tax on its GST/HST return.

If the reseller qualifies for an input tax credit (ITC), it could claim the credit on the same return, effectively offsetting the tax payable and avoiding any actual payment. The proposed RCM is designed to combat GST/HST carousel or “missing trader” fraud schemes. In these schemes, goods or services are sold through a chain of registered businesses.

Each business pays GST/HST to its supplier and claims an ITC. Typically, the final transaction involves a zero-rated export, meaning no tax is charged. However, one participant in the chain—the “missing trader”—collects GST/HST from customers but disappears without remitting it to the government. As a result, fraudsters keep the tax funds while the government loses revenue.

In many cases, the Canada Revenue Agency (CRA) has attempted to recover the lost tax by denying ITCs claimed by legitimate businesses that purchased from fraudulent suppliers. The CRA has sometimes argued that the transactions were not genuine (“phantom transactions”) or that the businesses should have known about the fraud. This has left innocent companies responsible for tax losses caused by criminals.

A recent Tax Court of Canada decision (Entrepôt Frigorifique International Inc. c. Le Roi, 2024 TCC 78) highlighted problems with this approach. In that case, the CRA denied a taxpayer’s ITCs, claiming the taxpayer was complicit in or should have been aware of supplier fraud. The court rejected the CRA’s position and ruled that the agency had failed to warn the taxpayer that its suppliers were not remitting GST/HST. The court also noted that the CRA could have cancelled the fraudulent suppliers’ GST/HST registration numbers but allowed them to remain active for years, enabling further fraud.

The proposed RCM aims to prevent such situations by shifting the tax reporting responsibility to resellers rather than suppliers. This structure removes the opportunity for “missing traders” to collect and disappear with GST/HST funds.

It would also reduce the risk that legitimate businesses are penalized for fraud committed by others, while helping the government better prevent large-scale GST/HST fraud schemes.  If the Canadian RCM had applied to John Bracken:

  • The scheme would likely fail at the ITC/refund stage
  • BEL could not have generated refundable GST through fictitious invoices
  • The CRA would not have paid out large refunds in the first place.

Pro tax tips – fraudsters can still file a voluntary disclosure application to come clean

Honest businesses may defend themselves by showing they exercised the degree of care, diligence, and skill that a reasonably prudent person would have exercised in comparable circumstances.

This is an objective standard, as clarified in Cherniak v. The Queen and Buckingham v. Canada (FCA), and requires evidence of active oversight, verification of suppliers’ GST registration, and scrutiny of business partners.

As for fraudsters who are involved in a carousel scheme, their best chance to come clean is to file a voluntary disclosure application. The Voluntary Disclosures Program (VDP) allows taxpayers to correct past tax inaccuracies, avoiding criminal prosecution and reducing penalties. To qualify, the disclosure must be voluntary, complete, involve a penalty, and be at least one year past due.

Accepted applications generally guarantee immunity from criminal tax prosecution. Having said that, the CRA still has the discretion to determine whether to accept a voluntary disclosure application or not. Therefore, it is highly recommended that taxpayers consult with an experienced Canadian tax lawyer to maximize their chances.

FAQ:

What is a carousel scheme?

A carousel scheme, often referred to as “missing trader” fraud, is a sophisticated form of GST/HST tax evasion in Canada where companies in a supply chain collude to charge and collect GST/HST but never remit it to CRA. The scheme often involves “zero-raters” (exporters) generating artificial input tax credits (ITCs) on goods that may not actually exist or are just circling through a series of transactions.

What is a voluntary disclosure application?

A Voluntary Disclosures Program (VDP) application is a CRA program allowing taxpayers to correct inaccurate, incomplete, or unreported tax information—such as undisclosed income or assets—before the CRA uncovers it. If accepted, taxpayers often avoid penalties and potential criminal prosecution, though they must still pay the taxes owed plus interest.

Disclaimer: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.