Canada’s underground economy — are you contributing to it?

Have you ever paid someone to replace your kitchen counters in cash? Or did you pay cash for a haircut and didn’t notice whether GSH/HST was applied or not? Or, hired someone “under the table” to do home renovations? Well, you may be contributing to a problem that costs the government billions of dollars in unpaid taxes every year. The underground economy (EU) is a serious problem and for years it has been a recurring problem in Canada.

It can be tempting to pay for some things in cash because we think saving a few bucks here and there can’t hurt; however, we don’t see the wider impact of what happens when we do. The underground economy is a form of fraud and is considered an illegal economic activity. The Canada Revenue Agency defines the underground economy as any activity that is unreported or under-reported for tax and GST/HST purposes[1].

In June 2016, Statistics Canada published a report estimating the value of Canada’s underground economy at $45.6 billion in 2013, equivalent to 2.4% of Canada’s GDP. The research also highlights that four sectors accounted for nearly two-thirds of the total estimated underground economy: residential construction, finance, insurance/real estate, and retail. Participation in the underground economy hurts all Canadians, including responsible citizens and businesses that pay the right amount of tax.

So here’s what you can do to help level the playing field for tax payers:

  • Like consumer: Make sure you hire responsible companies by asking questions and doing research. Any reputable company will follow the rules and not accept under the table transactions. Obtain a written contract and a copy of the payment for your records. These will give you the protection you deserve and the peace of mind you need.
  • As a business leader: report your income accurately with the CRA — taking shortcuts when reporting your income could result in penalties, fines, and even jail time. The best way to make sure you’re reporting your income accurately is to keep your sources of income organized and know what the CRA expects you to ask.

If someone is offering to provide services to you for money, or if you suspect that an individual or business has not reported all of their income or GST/HST, you can contact the CRA by intermediary of Informant Lead Program.

Michelle Auger is the National Affairs Team Coordinator in Ottawa and has been with CFIB since August 2015. Michelle holds an Honors BA in Social Sciences from the University of Ottawa and is fully bilingual. An avid runner and cross-country skier, Michelle spends much of her free time exploring Gatineau Park.

Bonny J. Streater