In the past month, two warnings concerning the use of

artificial intelligence

(AI) in the world of Canadian personal tax have been issued. The first, was a general warning to

Canadian taxpayers

courtesy of the

Canada Revenue Agency

, while the second was a reminder from a federal court judge about the use of AI by taxpayers when preparing their documents for court.

The CRA’s warning

In March, just a few weeks into the

current tax filing season

, the CRA issued a tax tip alerting Canadians to

tax scams

, whether they come by letter, e-mail, text or phone call. The CRA said scammers are always improving their tactics to trick you into giving away your personal or financial information, with their latest trick being the use of

generative AI

(GenAI).

GenAI is a type of AI that creates new content in response to user prompts and has become the most prevalent type of AI used for tax scams and fraud. Scammers tend to use GenAI due to its ability to generate human-like content including text, images, audio, software code, simulations, videos and synthetic (artificially generated) data.

Using GenAI makes it easier for unskilled and inexperienced scammers to create more sophisticated, malicious content such as fake websites that would have previously required deeper knowledge and more time to design. In other words, access to GenAI provides scammers with new ways to facilitate their criminal activities, which increases the risk of fraud.

Sometimes, scams created by bad actors using GenAI contain errors such as typos, fuzzy logos, poor translation and formatting mistakes. But, in knowledgeable hands, GenAI can also produce very realistic and convincing deceptions of official CRA communications.

There are some easy things you can do to protect yourself from scammers, the agency said.

Before clicking on a link or giving away personal information, verify the information you are sent, such as about government benefits, against official sources such as the official websites of the Government of Canada (Canada.ca) or your provincial government.

If you’re unsure if a phone call is from the CRA, you can always call the agency back at their public number or communicate with them through secure channels, such as CRA My Account or by mail.

Finally, if you suspect you’ve been the victim of a scam, or you notice any suspicious activity on your CRA account, be sure to report it to the CRA immediately.

A judge’s warning

Regular readers of this column will be quite familiar with the hundreds of cases that have been going through the courts in the past five years related to taxpayers who inappropriately claimed COVID benefits.

One of the more recent cases involved a taxpayer who applied for, and received, the

Canada Emergency Response Benefit

(CERB) from March 15, 2020, to Sept. 26, 2020. As a reminder, the CERB was offered for any four-week period during that time if an applicant could demonstrate they stopped working “for reasons related to COVID-19,” and had income of at least $5,000 from employment or self-employment in 2019 or in the 12 months preceding their first application. The CERB was subsequently replaced by the Canada Recovery Benefit (CRB), with similar eligibility criteria.

The CRA initially followed up with the taxpayer in April 2022 to confirm whether she had, in fact, been eligible to receive the CERB. In response, she submitted various bank statements, pay stubs, her employment termination letter and her 2020 T4 slip.

In July 2023 the CRA informed the taxpayer that she had not been eligible for any of the CERB payments she had received because she had earned more than $1,000 in employment income during the relevant periods and she hadn’t stopped working or had her work hours reduced due to the pandemic.

The taxpayer then requested a second review of her CERB eligibility. She argued that she had been eligible for the CERB because: she was laid off from her job in February 2021 because of the impact of the pandemic on her employer; her earnings were significantly reduced during the pandemic; her caregiving responsibilities for her disabled child limited her ability to work during the pandemic; renovations on her building limited her ability to work during the pandemic and the government’s communications about the CERB had been “inconsistent, ambiguous, and confusing.”

In May 2024, the CRA officer who conducted the second review confirmed that the taxpayer had not been eligible for the CERB because of her employment income. She decided to

appeal the matter to Federal Court

, where, as in all prior COVID benefit cases, the judge’s role is to determine whether the CRA’s decision to deny her the CERB was reasonable.

The taxpayer appeared alone in federal court in February 2026, having chosen not to be represented by counsel. In advance of the hearing, she prepared her own memorandum which referenced five prior court cases. The problem was that two of them, in the words of the judge, “simply do not exist.”

At trial, the taxpayer acknowledged that she used an artificial intelligence application to assist with drafting her materials. The judge remarked that disclosing the use of AI in materials provided to the Court is required by the Federal Court

Practice Direction

entitled The Use of Artificial Intelligence in Court Proceedings, dated May 7, 2024.

This Practice Direction exists “to protect the integrity of judicial proceedings, safeguard public confidence in the justice system, and uphold the rule of law.” As the judge stated, “While (the taxpayer) may have believed that her reliance on AI was innocuous, it was not, as it resulted in her placing hallucinated jurisprudence before this Court.”

While the use of AI hallucinations certainly didn’t help the taxpayer’s case, she ended up losing anyway as she had, in fact, earned more than $1,000 in each period that she received the CERB, so she simply didn’t qualify.

While AI can certainly be a helpful tool in conducting tax research, if you’re not a tax professional yourself it’s best to double-check any tax information you plan to rely on from your AI query against official CRA information found on the Agency’s extensive website. And, if you’re citing a prior case, it’s best to actually find the case itself online to make sure it’s real.

Jamie Golombek,
FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto.
Jamie.Golombek@cibc.com

.

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