News release

Revenue Canada's underground economy initiative

February 25, 1998

Revenue Canada is committed to ensuring fairness and equity in the tax system. In order to ensure a level playing field for business and taxpayers, combating the underground economy is key.

The Department has a balanced action plan to deal with the underground economy, which includes:

• identification of non-filers and GST non registrants;
  
  
• special audit teams focused on areas of high non-compliance -- such as construction and home renovation, auto sales and repair, jewelry, and hospitality;
  
  
• working cooperatively with other federal departments and the provinces to encourage voluntary compliance and combat underground economic activities;
  
  
• working with key industry groups and professional associations to encourage voluntary compliance and identify underground economic activities;
  
  
• increasing the visibility of compliance and enforcement activities by publicizing convictions for tax evasion and conducting community visits;
  
  
• reviewing and acting on referrals from the public; and
  
  
• increasing public awareness of Revenue Canada's voluntary disclosure policy.

Results of Revenue Canada's actions against the underground economy to date:

• voluntary disclosures have quadrupled since 1993;
  
  
• departmental staff have visited 160 communities and met with more than 29,000 businesses;
  
  
• more than $2.3 billion in additional tax since November of 1993 resulting from enforcement activities related to the underground economy; and
  
  
• the Department has obtained over 480,000 returns from non-filers in 1996/97.

Reporting of payments to federal government service contractors

The federal government is doing its part to strengthen voluntary compliance by business and individuals who are engaged under contract to provide services to departments, agencies and crown corporations.

• Effective January 1, 1998, federal government departments and agencies have resumed reporting the contract payments made to all forms of businesses (individuals, small business, corporations, partnerships, etc.) where the total payments for service contracts are greater than $500. T4A information slips will be issued annually. Crown Corporations will begin to report such contract payments, effective January 1, 1999.
  
  
• The T4A information slip is used for reporting a variety of non-wage payments. The information on the T4A slips is also provided to Revenue Canada.
  
  
• Federal departments and agencies will issue the first information slips on or before February 28, 1999. Crown corporations will commence issuing information slips on or before February 28, 2000. Some of the provincial governments have already undertaken similar initiatives and discussions are underway with others.

Revenue Canada and the Construction and Home Renovation Sector

Revenue Canada has undertaken several other activities in the construction and home renovation sector including the Contract Payment Reporting System.

• Over 13,000 underground economy audits have been completed in the sector and $165 million in unreported taxes have been reassessed.
  
  
• Additional sources of information, including building permits, municipal and provincial licensing, and materials suppliers are being used to help identify underground activity.
  
  
• A revised GST New Housing Rebate form was introduced in 1997. As part of the form, owner-builders are required to provide information on who did the work and how much was paid.
  
  
• Revenue Canada and the Canadian Home Builders' Association established a working group to address areas of mutual concern.
  
  
• A consultative framework has been established with the Canadian Construction Association to deal with compliance issues.
  
  
• Revenue Canada has held meetings with local and national union representatives.
  
  
• The Department participates in home renovation and industry trade shows to raise industry awareness of underground economy issues and to provide consumers with information on the pitfalls of dealing with the underground economy.

While Revenue Canada has accomplished much in dealing with the underground economy in the construction and home renovation sector, more is required to ensure businesses can compete. The proper reporting of sub-contract payments is an important step to better ensure compliance.

• A reporting system is effective in encouraging voluntary compliance.
  
  
• It is less intrusive than traditional enforcement actions and will help to ensure that those who comply will not face the cost of an audit.
  
  
• It will enable the Department to focus its enforcement actions on the most non-compliant.