Outcome/Expectation 2: Demonstrate an understanding of the underground economy and its impact on Canadian society

Suggested time: 75 minutes (35 minutes for Activity 1, 20 minutes for Activity 2, and 20 minutes for Activity 3).

Activity 1: Tax remittance simulation

To complete this section, you will need the teaching aids Appendix 7, 8 and 9 and Black Line Masters 3, 4 and 5.

Teacher tip
This activity simulates a very simplified version of income tax remittance in order to set the framework for discussion of the underground economy. You may find it useful to have a student prepare a spreadsheet to keep track of the professions, salaries and taxes being remitted. This will allow for easier calculations as well as save some time.

1) Provide the students with the taxpayer profiles that describe the various simulated jobs and incomes. There are 40 profiles, so some students will receive more than one profile. It is best if all 40 profiles are distributed (use Black Line Master 3).

2) Using the sample income tax and benefit returns provided (use Black Line Master 4), inform the students that they are to determine the amount of taxable income they will report on their tax return for the year. They must also calculate the income tax payable on that taxable income based on the following taxable income ranges and tax rates:

Taxable income range	Tax rate
35,000 or less	25%
35,000 - 70,000	30%
70,000 - 110,000	40%
110,000 or more	45%

The above tax rates include both federal and provincial rates and are for illustration purposes only. Provincial and territorial tax rates and taxable income ranges are different in each province or territory.

3) Have the students place their tax return in an envelope that is circulated throughout the class. This serves as their reporting of income tax to the Canada Revenue Agency (CRA).

4) Have one group of students act as the Receiver General to calculate the amount of tax received. There are 40 taxpayer profiles earning total income of $2,662,500 with an income tax total of $966,450. See Appendix 7, Summary of total income and total tax.

5) Based on the taxpayer profiles given to the class, there will be a shortfall between the expected tax remittance and the actual tax remitted. (Five taxpayer profiles are told not to report their correct taxable income and one taxpayer profile does not file a return at all). Refer to the budget in Appendix 8 where the revenue and expenditures are noted (see Appendix 9 and Black Line Master 5). With all taxes not being reported, the students should decide what expenditures should be cut to make up a balanced budget. This leads into a discussion on participating in the underground economy and the shortfalls that this causes.

6) Have the students write their definition of the underground economy and compare their definitions to other definitions (refer to Glossary.)

7) As a class, ask the students to discuss the implications of the shortfall on their lives and on Canadian society. You may want to refer back to the student worksheets from Outcome/Expectation 1 for examples of services that may be affected.

Activity 2: Examining the underground economy

To complete this section, you will need teaching aids Appendix 10, Black Line Master 6, Visual 6 and Student Handout 2 and 3.

Teacher tip
The underground economy is defined as people or businesses that operate in a manner contrary to tax laws to reap benefits from not reporting and paying their required share of taxes and other dues that they rightfully owe. Their actions negatively impact the government's ability to deliver services to the public. Typical taxes impacted would include income tax, excise tax, GST/HST, retail sales tax, tobacco tax, and fuel tax to name a few. Convictions Web site: www.cra.gc.ca/convictions

1) Have the students discuss and debate the accuracy of the following myths:

• The penalties for participating in the underground economy are minor.
• Nobody gets hurt if you participate in the underground economy.
• You save money by participating in the underground economy.

2) Elaborate on the following chart so that the students will identify the impact of the underground economy on individuals and society (see Appendix 10 and Black Line Master 6).

Examples of the Impact of the Underground Economy on Canadians

3) Use the Transfer Payments Visual 6 and Student Handout 2 and 3 to discuss the impact of the underground economy on resources required to support essential services for the Canadian public.

Activity 3: Citizens' rights and responsibilities

To complete this section, you will need teaching aids Appendix 11 and 12, Black Line Master 7, and Student Handout 4.

1) Have the students individually, or paired, complete the chart on their rights and responsibilities (see Appendix 11 and Black Line Master 7). Then ask them what they think their rights and responsibilities are in the taxation system.

Note
Some examples of a taxpayer's responsibilities are: filing a tax return each year by the deadline; paying the correct amount of tax each year and on time; giving the CRA the information necessary to assess your return for the year; and getting help when necessary.

2) Using the Taxpayer Bill of Rights (see Appendix 12 and Student Handout 4), have the class discuss the rights and responsibilities of Canadian citizens regarding taxes.