Canada’s underground economy comes at a staggering $ 45.6 billion hidden cost

When the person behind the counter of a store doesn’t call your purchases, chances are they are pocketing your money and not reporting the income to the CRA.

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This week, Statistics Canada released a report estimating the value of Canada’s underground economy at $ 45.6 billion in 2013, equivalent to 2.4% of GDP. This staggering figure made me wonder if I was personally partly responsible.

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You see, for years I had an ethical dilemma. When you visit a local bakery or convenience store to purchase a single item for cash, the cashier tells me the price, often including sales tax if applicable, and gives me my change without ringing the item in the cash register . If the cashier is just an employee and not the store owner, there’s a good chance they’ll just pocket all that untracked money at the end of the day or, frankly speaking, steal.

While part of me wants to force the cashier to ring my transaction so the owner doesn’t get ripped off, the other part of me wonders if the owner is too naive to know what’s going on, is that my ethical responsibility to supervise the owner’s employees. A simple fix exists at many restaurant chains, which display a sign on the cash register that says if you don’t get a receipt your meal is free. This encourages most sales to be recorded in the ledger and tracked.

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But the biggest problem comes when the owner is behind the cash register and pockets the money without ringing the sale. The owner is also stealing, but in this case, she is stealing from me and you Canadian taxpayers as this sale is unlikely to be included in her income for tax purposes at the time of reporting. I’ve even seen store owners collect the sale price plus 13 percent HST and not pass it through the cash register. In other words, I pay my taxes, but it is more than likely that the government will not collect a cent.

Of course, to resolve my ethical dilemma, I could simply choose to pay with a debit or credit card, rather than cash, assuming the retailer accepts such forms of payment for relatively small purchases. It’s no surprise that cash is a major enabler of the underground economy.

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The report, commissioned by the Canada Revenue Agency, does not provide an estimate of the total amount of taxes that go unreported and paid, known as the “tax gap”. But it highlights the trend of the underground economy as a percentage of GDP for Canada and its provinces and territories. The report shows that although the underground economy, as a percentage of Canada’s official GDP, has remained stable over the past decade, it grew 3.8% from 2012 to 2013, the same rate of growth as GDP. .

The research also pointed out that four sectors accounted for almost two-thirds of the estimated total underground economy: residential construction (28 percent); financial, insurance, real estate, rental, leasing and holding companies (13%); retail trade (13%); and accommodation and food services (12 percent).

As the CRA has stated, participating in the underground economy hurts all Canadians, including responsible citizens and businesses that pay the right amount of tax. The CRA encourages Canadians to report suspicions of tax evasion on their website or by contacting its National Trail Center. Your identity will not be disclosed, or you can choose to report anonymously.

Financial post

Jamie Golombek, CPA, CA, CFP, CLU, TEP is Managing Director, Tax and Estate Planning with CIBC Wealth Strategies Group in Toronto. [email protected]

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Shawn G. Randall

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