The underground economy

The underground economy typically involves commercial activity that is unreported for tax purposes. It is of concern to the CRA, as well as all provincial, territorial and municipal jurisdictions, and all law-abiding businesses and individuals across the country.

• Know the Facts
• Why you should not support those who participate in the underground economy
• How to protect yourself
• Why you should not participate in the underground economy
• How do I get my tax situation straightened out before the CRA begins enforcement actions?
• What action is the Canada Revenue Agency taking against the underground economy?

Know the Facts

Underground economic activity is particularly prevalent in industry sectors where cash transactions are common, such as hospitality, automotive repairs and construction, including home renovations.

It is a myth that operating in cash and failing to keep records makes you immune to taxes. If your lifestyle is not in line with the income you report, and you cannot explain the difference, the CRA can assess taxes based on indirect or alternate methods of calculating your income.

Evading taxes is illegal and can result in criminal convictions leading to fines and jail time in addition to any taxes and penalties owing under the Income Tax and Excise Tax Acts.

The CRA publicizes criminal convictions in the newspapers and on its Web site.

Why you should not support those who participate in the underground economy

The underground economy hurts all Canadians. Those who participate in the underground economy avoid their tax responsibilities at your expense, and place an unfair burden on all law-abiding taxpayers. Unpaid taxes mean less money for programs, such as health care, childcare, employment insurance and pensions.

The underground economy also undermines the competitiveness of businesses and individuals because it offers an unfair, illegal advantage to those who fail to comply with Canada's tax laws. It undermines the integrity of our tax system.

For consumers, paying "under the table" for a job is not a better deal. If you pay cash you have no warranty, no recourse for poor workmanship, and the added risk of liability if an injury takes place on your property.

How to protect yourself

Before you hire anyone be sure to ask a lot of questions, make sure a written contract is in place, and ask for proof of Workers' Compensation or equivalent private liability insurance to cover injury as well as any damage that could occur in your home. This will protect you from being liable for an injury in your home, as well as damage to your home, and to the worker's equipment.

Information is the key. Know the businesses and individuals with whom you are dealing, and use the information at your disposal, including this Web site to recognize those who are participating in the underground economy

Why you should not participate in the underground economy

Paying your taxes is the law. Tax evasion is against the law. In addition to paying fines, you could lose your business, your home, and you could even go to jail.

The CRA has access to a variety of tools to detect and prosecute those who do not report all of their income, including information-sharing agreements, on-site visits by officers, information obtained from third party reporting systems, leads from other audit files, and lifestyle audits.

In addition to being fined by the court and possible prison sentences, people found guilty of tax evasion must pay the taxes they owe, as well as interest and penalties imposed under the Income Tax and Excise Tax Acts.

How do I get my tax situation straightened out before the CRA begins enforcement actions?

Through the Voluntary Disclosures Program, people are encouraged to step forward and correct previous omissions. This program allows you to correct inaccurate or incomplete information or disclose amounts that were not previously reported, without penalty or prosecution, as long as you do so before the CRA starts enforcement actions.

What actions is the Canada Revenue Agency taking against the underground economy?

The CRA has 1250 employees working full time on its identification, audit, and enforcement programs addressing the underground economy.

The CRA also works with the provinces, territories, and other federal government departments and agencies to better identify those participating in the underground economy.

For example, the Ontario Workplace Safety and Insurance Board and the CRA recently agreed to exchange information that can identify individuals registered with one government but not the other. The CRA also has a similar partnership with the Workers' Compensation Board of Nova Scotia.

The CRA has a Record Keeping Initiative whereby an auditor will visit a business to ensure that proper books and records are being maintained and kept. For more information on books and records, visit RC4409 - Keeping Records.

CRA officers conduct community visits to businesses as part of the Agency's outreach program. The purpose of these visits is to provide businesses with the latest information and answer their questions.

The CRA has partnered with the Canadian Home Builders' Association in developing the "Get it in Writing! National Awareness Campaign", a national consumer awareness campaign to inform individuals of the risks involved in dealing with "under the table" contractors. For more information, visit http://www.hiringacontractor.com/En/default.asp.