Canada’s Underground Economy Is ‘under the table’ really worth it?
What is the underground economy? It is when people partake in business activities and work but do not report that income on their tax returns or pay the appropriate amount of sales tax. This ‘industry’ is estimated to be an over $42 billion dollar per year conglomerate in 2015 alone, it has undoubtedly grown since then.
Why is this an issue you ask- because the CRA knows it exists and has many people on its payroll whose job it is to uncover income people are hiding. The Canada Revenue Agency uses a number of tools to detect those involved in the underground economy, including:
•leads from taxpayers and audit files
•information-sharing agreements and information obtained from third party reporting systems
•specialized computer software
•lifestyle audits and spot visits by auditors
CRA accessing your bank accounts, PayPal accounts, people popping up and looking at your lifestyle/bills vs the minimal income you declared. CRA levying a tax bill based on their estimates. Sound terrifying?
It is also an issue because the activities associated with income hiding like paying employees ‘under the table’ and failure to remit taxes and source deductions can do more harm than good for both the employee and employer;
From the employer prospective many business related expenses have not been claimed, leading to a failure to claim appropriate tax deductible expenses like wages and source deductions. Also, the employer portion of CPP and EI are relatively small in comparison to the fines associated with failing to report an employees income. Keep in mind if a CRA audit occurs, those funds paid to the employee may undoubtedly arise. Employers may feel that it is costly to run a payroll program, this is farthest from the truth. A qualified Accountant can request a payroll tax number and implement a payroll program relatively easy which the employer or Accountant can manage- just tell the Accountant what hours to pay!
From the employee prospective in failing to declare income and remit they have disqualified themselves from receiving Unemployment Insurance (EI) as they have no reported insurable earnings, they also wouldn’t be entitled to WSIB etc. if they become injured on the job.
The best way to protect yourself is through the use of capable Accountants who can devise tax planning strategies that work best for your lifestyle and type of income.
There are many options and suggestions that a qualified tax professional can help you decide upon, for instance; RSP contributions to reduce taxable income, maximize your credits, future tax planning before the year is over, income splitting, transferring credits and many more!
So don’t panic, consult a professional that can take the tax stress away so you can focus on your business and lifestyle.