About the underground economy

What is the underground economy?
Consumers–the underground economy is risky business
Businesses–there are serious consequences for participating in the underground economy
What the Canada Revenue Agency is doing to fight the underground economy
Combatting the underground economy requires partnership

What is the underground economy?

The underground economy is any activity that is unreported or under-reported for tax and GST/HST purposes. Often called “moonlighting” or “working under the table,” it can include bartering, failing to file tax returns, omitting an entire business activity from your tax return, “skimming” a portion of business income from what you report on your taxes, and not reporting a portion of employment income like tips and gratuities.

Generally, any income you earn is taxable and you have to report it on your tax return. If you don’t file your tax return or register your business for GST/HST when you’re supposed to, or you don’t report all of your income, you are participating in the underground economy.

Think about it...

You may think that operating in cash and not keeping records will make you immune to taxes. That’s false–the Canada Revenue Agency has sophisticated tools, access to information, and legislative powers to find those participating in the underground economy. Evading taxes is illegal and can result in severe penalties, criminal convictions, fines, and jail time.

The underground economy deprives all Canadians of much-needed funds for our communities and essential public services like schools and hospitals. It also undermines the competitiveness of honest businesses, especially small businesses that follow the rules and create employment in your community.

The underground economy hurts everyone!

Consumersthe underground economy is risky business

If you pay cash or don’t get a written contract or receipt when you purchase goods or services, you may be helping someone cheat on their taxes. Not only that, but you are putting yourself at risk, particularly when it comes to home renovations. Here is how you can protect yourself.

Deal with businesses that play by the rules

When you buy goods and services, don’t give the cheaters a chance. Hire businesses that will give you a written contract. When you’re shopping or dining out, make sure you get a receipt. Also, keep an eye out for whether the business is charging you GST/HST. Generally, the GST/HST shows up on your receipt or invoice because anyone earning over $30,000 should be registered for and collecting GST/HST. To check if a business is registered, use the GST/HST registry search.

Do not hire a contractor “under the table”

Getting a cash deal from a contractor for home renovations–without a written contract–is risky. You have no protection against:

    • poor or incomplete work
    • being sued if a worker gets injured
    • cost overruns
    • the use of substandard materials
    • responsibility for damages to your or a neighbour’s property
    • fraud, when you pay for work that is never done

Protect yourself!

When you hire a contractor, get a signed contract with the GST/HST number on it, a detailed warranty, and a receipt for all amounts paid. Also make sure your contractor has liability insurance and workers’ compensation coverage for all workers entering your home.

Don’t assume your home insurance will cover the costs if something goes wrong. Imagine you had a roofing company working on your home and someone fell and was injured. Without workers' compensation coverage and a clear contract, you could be held responsible, possibly sued, and your home insurance might not cover you.

If that same worker wasn’t injured but accidentally caused a fire or a leak in the roof that resulted in water damage, you might be paying out of pocket to fix the damage if your contractor doesn’t have liability insurance.

For more advice on how to hire a contractor, go to Get it in Writing!

What can you do?

You can help level the playing field for persons who pay their taxes. If someone offers to provide services to you for cash, or you suspect an individual or business has not reported all their income or GST/HST, you can contact the CRA through the Informant Leads Program. Through this program, the CRA reviews information provided by the public to help identify taxpayers who are not complying with their tax obligations.

Businessesthere are serious consequences for participating in the underground economy

You have to report all of your sales or income. You also have to report all work your business did for cash. If you don’t, you could pay penalties, be criminally convicted and/or go to jail, as well as lose your business. It’s that simple.

Your responsibilities as an employer

As a business, you have to collect and remit payroll deductions for your employees and meet your reporting requirements. For more details, go to employer responsibilities.

In general, you also need to be registered for the GST/HST if your revenue (before expenses) is more than $30,000 per year. For more information, go to registering for a GST/HST account.

Protect your employees

Paying your employees under the table is unfair to them and is against the law. You are robbing them of the benefits they are eligible for, like employment insurance, Canada Pension Plan payments, and workers’ compensation coverage.

Further, if you pay your employee under the table, you could be facing administrative penalties and/or legal repercussions by provincial worker’s compensation boards for failing to report accurate payroll, or failing to report an accident if the worker is injured on the job. In Ontario, for example, the fines for not following provincial workers’ compensation rules can be up to $500,000. You are also putting yourself at risk of being investigated by the CRA which can result in a criminal conviction, fines, and/or jail time.

Make a voluntary disclosure

If you have participated in the underground economy, you can correct your tax situation with the CRA through the Voluntary Disclosures Program. Before the CRA finds you, you have an opportunity to come clean.  Under certain conditions, this program allows you to correct inaccurate or incomplete information on your tax returns. You can disclose amounts that were not previously reported, without penalty or prosecution. You will pay the taxes you owe plus interest.  Remember – if you want to participate in the VDP, you must provide complete information.

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