Canada’s underground economy is thriving. So, are you contributing? – National
If you pay the guy who replaced your kitchen counters in cash, you may be contributing to a problem that costs the government billions of dollars in unpaid taxes every year.
Canada’s underground economy is still thriving, according to a new Statistics Canada report, despite efforts to reduce the number of transactions that “escape measurement because of their hidden, illegal or informal nature.”
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The value of Canada’s underground economy in 2013 was $ 45.6 billion, or about 2.4% of the country’s gross domestic product.
That’s pretty much exactly where the numbers were in 2012, within a few billion dollars, and where they’ve been hovering since 2002.
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Something as simple as paying a neighborhood teenager to babysit or supporting a church bake sale contributes to the underground economy. But no one breaks tax laws when making these transactions, unless certain thresholds are crossed.
For example, work such as babysitting or mowing the lawn counts in the taxable income of the person providing the service and must be included on a tax return. But Canadians need to earn just over $ 11,300 before the government starts collecting taxes – far more than your average 16-year-old babysitter earns in a year.
“When no tax is due, the individual is not required to file an income tax return,” a spokesperson for the CRA said Monday. “However, an individual may wish to file a return even if they are not taxable in order to accumulate RRSP contribution room for a future investment. “
These types of services would normally also be GST / HST exempt, provided the service provider’s total sales are less than $ 30,000, the spokesperson added.
The Canada Revenue Agency makes no effort to monitor these mini-transactions. They’re ubiquitous in Canadian homes, and the CRA has a lot more fish to whip up.
Only three industries account for more than half of the total value of the underground economy, according to Statistics Canada. They are:
- Residential construction (27.8%)
- Retail trade (12.5%)
- Accommodation and food services (11.7%)
Residential construction is by far the worst offender. Statistics Canada believes this is in large part due to entrepreneurs accepting cash payments and then failing to charge or pay the required taxes.
In these cases, it is technically the contractor who is breaking the law, but the CRA encourages Canadians to always avoid paying someone in cash or “in the dark” to save money.
Such transactions expose the consumer to liability if someone is injured on their property, offer no warranty on the work, and offer homeowners little recourse if the job is poorly done.
Paying your employees – even domestic workers like nannies – in the black is also illegal. And tips earned on the job are part of overall income and must be reported on a personal income tax return.
“Wages not recorded in payroll records and tips on unreported transactions totaled $ 21.4 billion in 2013,” notes Monday’s report.
Statistics Canada did not include certain illegal activities, such as drug trafficking or prostitution, in its study. This means that the value of the underground economy, which Statistics Canada has been tracking for years, may in fact be higher than expected.
The CRA considers this to be a major problem, explaining on its website that the underground economy “hurts all Canadians”.
“Unpaid taxes mean less money for programs, like health care, child care, employment insurance and pensions,” the CRA notes. “It undermines the integrity of our tax system. “
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