Underground Economy Grows 3.8%

The Underground Economy grew 3.8% between 2012 and 2013, but is considered “stable”  based on CRA’s June 20th revised estimate report for the period 1992-2013.  Still, it’s growing at the same rate as the GDP – 2.45% - and is estimated to be close to $46 Billion in size.  So who is skirting their tax obligations?

CRA’s research shows that residential construction is the worst industry culprit, accounting for 28% of the UE; the next two categories are tied at 13% each:  finance, insurance real estate, rental, leasing and holding companies; then retail trade.  Finally accommodation and food services account for 12% of the UE.

The good news is that Canada has a very compliant tax base.  According to the Organisation for Economic Co-operation and Development (OECD), the UE in Canada is amongst the lowest of all the OECD countries.

Those who cheat fail to report or under report their income by failing to file returns, report revenues or business activities or register to remit GST.   This hurts all taxpayers, who must make up for the lost revenues by paying more taxes than they otherwise would have to.  It also hurt honest business people forced to compete with unscrupulous vendors whose quotes for the same work may be lower because they are working “underground”

The provinces where tax cheating is the largest are Ontario, Quebec, BC and Alberta; this makes sense as they also have the largest economies.

Failure to report income or remit required taxes is a criminal offence.  Tax evasion attracts penalties of up to 200% of taxes owing and in severe cases, jail time.  This can be avoided by making a voluntary disclosure to report errors and omissions in filings.  Be sure to work with a DFA-Tax Services Specialist^TM for assistance with the catch up filings and the collections department if outstanding amounts are due.  Hardship reasons may be considered in waiving penalties and interest as well.

CRA also has several “snitch lines.”   Tax evasion may be reported on domestic abuses as well as offshore evasion which can attract a $100,000 award under the Offshore Tax Informant Program.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 52 books on family tax preparation and planning.

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