The underground economy of the construction industry steals billions every year
‘It’s time to stand up and speak out,’ says Canadian Carpenters Union President
The United Brotherhood of Carpenters (UBC) held its 2022 Days of Action Against Tax Cheating (April 11-16) last week to raise awareness among Canadians about tax evasion in the construction industry.
UBC, whose head office is in Winnipeg, is not alone in complaining about the phenomenon of tax evasion in the construction sector.
Building tax fraud
In Canada, federal and provincial tax authorities have argued for years that the highest levels of tax evasion and tax evasion they face occur consistently within the construction industry sector.
“The underground economy is thriving in Canada, particularly in the construction industry, stealing billions of dollars each year,” says Jason Rowe, Vice President of UBC’s Canadian District. “Tax evasion deprives honest, hard-working Canadians and their families of the services they have worked for and deserve,” he said.
Escaping from responsibilities
UBC says communities and Canadians are suffering as funding for critical programs and infrastructure is lost to dishonest contractors who operate in the underground economy, while evading tax responsibilities and breaking the law.
They say dishonest employers also intentionally classify workers as independent contractors or pay them cash to ensure workers do not appear on official employer payroll records and are not covered by insurance. -employment and workers’ compensation.
According to UBC, when employers shift their tax burden to their employees, the latter are forced to pay their employer’s payroll taxes, placing a significant financial burden on working families.
Honest businesses can’t compete
UBC says tax evasion in the construction industry also punishes honest and fair construction companies that cannot compete with fraudulent labor costs.
According to Statistics Canada, the underground economy accounted for $61.2 billion in economic activity in 2018 and that the largest slice of underground economy activity in Canada in 2018 was in the residential construction industry. (26.2% or $16 billion).
The United Brotherhood of Carpenters points out that this represents billions of dollars in lost tax revenue that would otherwise be used to repair roads, bridges, schools, veterans care and fund other essential public programs.
Statistics Canada defines the underground economy as market-based economic activities, whether legal or illegal, that escape measurement because of their hidden, illegal or informal nature.
Impact on economy
According to figures released by the federal agency at the end of 2020, the estimated gross domestic product (GDP) at market prices for all underground economic activity in Canada reached $61.2 billion, or 2 .7% of total GDP, in 2018.
However, the agency goes on to say that Canada’s underground economy shrank 0.8% in real terms in 2018 year-over-year, compared to year-over-year growth of 1. 9% in 2017.
Although data on the underground economy released nearly two years ago predates the COVID-19 pandemic, it has provided an important benchmark for measuring the full effect of the pandemic on the Canadian economy.
In 2018, four sectors accounted for more than half of underground economic activity: residential construction (26.2%), retail (12.3%), finance, insurance, real estate, rental and leasing and holding companies (10.3%), and accommodation and food services (9.1%). These industries have been major contributors to underground economic activity in Canada since this study began in 1992.
Undeclared wages and tips Of the $61.2 billion in unreported income in 2018, the largest share went to employees (42.4%) in the form of labor compensation. Wages not accounted for in payroll records and tips on unreported transactions amounted to $26.0 billion, or 2.3% of official employee compensation.
The remaining portion of underground income went to unincorporated business owners (28.6%) and incorporated business owners (26.1%).