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The underground economy

2010 YouTube Contests Winner - It could be you!

The CRA is pleased to announce the winners of the underground economy video contest, and invites all Canadians to check out the winning video on YouTube Web site and related videos.

The videos show that those who participate in the underground economy are avoiding their tax responsibilities at the expense of all Canadians. Participation in the underground economy places an unfair burden on law abiding businesses and individuals, and reduces the amount of money available for important government programs such as health care, education, and the environment.

Consumers who indirectly support the underground economy by paying cash for a "cheaper deal" should also be aware of the risks they are taking by dealing with someone who is not operating legitimately, which includes not having any recourse for poor workmanship and being liable if someone is injured on the job.

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.

Know the Facts

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.

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.

If you know of any taxpayer who is not complying with the tax laws, you can let us know and we will review the information and take appropriate compliance action. For further information and a regional contact number, please see Informant Leads Program.

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

A "Get it in Writing” brochure has been collaboratively authored by the Canadian Home Builders' Association and Canada Mortgage and Housing Corporation. The brochure is a source of information for Canadian consumers and provides insights on the risks of dealing with "under the table" contractors in the construction sector. For more information, visit: http://www.hiringacontractor.com.

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 dedicates a significant amount of resources to combating the underground economy, particularly in sectors of the economy where cash transactions are most common.

The CRA has a variety of tools at its disposal to detect those people who are not reporting all of their income, including leads from taxpayers, spot visits by auditors, specialized computer software, and lifestyle audits.

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

The CRA uses a mix of outreach, education, communication, and compliance actions in combating the underground economy.