Robert Koci
CRA targets the underground economy: Pilot project compares building permit applications to declared income
Canadian Contractor Business canada CarThe Canada Revenue Agency is moving from high value targets like off shore accounts and big business tax evasion to middle class Canada to find uncollected tax dollars
After an initial push to catch big-ticket tax cheaters, the Canada Revenue Agency (CRA) is now focusing on middle class tax evaders, says a report on CRA’s recent activities published in the National Post. The agency is now setting its sights on the estimated $38 billion underground economy, according to the report, using highly focused pilot projects targeting geographic areas such as the Peace River in Alberta and industry sectors like hospitality, construction and used car sales.
The building industry has not escaped CRA scrutiny in this new initiative. In the Sudbury and Barrie area, the CRA examined building permit records and found more than 2,700 individuals that were filing improper tax returns.
The information on CRAs recent activity came from a report released as a result of a Freedom of Information filing by the Canadian Press. According to the report, “much of the work occured in remote and sparsely populated areas that traditionally have limited visual interactions with CRA.” The initiative reportedly produced an additional $2.5 million for government coffers.
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If they want to stop the underground economy all they have to do is buy a bunch of black SUV’s with Rev Canada written on them and drive around the country. That’s all they have to do but they’re to lazy. Maybe pull into a few job sites if they’re bored, word would spread like wildfire.
The Government are all just sitting in Ottawa saying “I can’t believe all these suckers are sending us all this money”, check you local paper and see how many people are actually going to jail for this stuff, it’s like getting hit by lightning!
These actions shouldn’t surprise anyone… an income-hiding contractor is far easier and cheaper to get than a corporate CFO who is using multiple entities to avoid/defer the legitimate cost of doing business. Unfortunately, this type of enforcement barely touches the large iceberg of non-compliant business owners and corporate CFOs. Many homeowners don’t bother with building permits, particularly in more remote areas, so there is no way to track these projects. The claimed 2.5 Mill. additional monies have come with a cost. The cost to get this amount of tax revenue has not been provided for a cost-benefit comparison .
An accurate accounting of this continuing operation might provide some interesting results.
I figured if you want to protect yourselves you have to be a tax lawyer, the system is not really working and not fair to poor and mid-class families and businesses.
It is very difficult to run a small business, have all books updated and make a profit.
Tax report filings should be a lot more simple and should not required a CGA or equivalent to bring a share of equal protection by our justice and taxing system.
What is the reason for taxing so complicated that requires experts to file reports for ordinary people. It is not fair and it is hurting poor and middle class.
There’s actually $29 billion taxes owing to CRA.
In addition to examining building permits CRA can do secondary reviews to help recover these taxes.
A secondary review is an audit of a spouse, investor, supplier or subsidiary of an individual or company on which it is already doing a main audit.
If you work in a cash industry you have to be careful.
I agree that a proportionately larger amount of CRA resources are devoted to finding small biz cheats (and now charities too) as opposed to those particular large corps whom undoubtedly manage to siphon away otherwise taxable monies on a massive scale (probably for the reasons John suggests and perhaps too because of lobbying/political donations that skew government interests in favour big business). I think that these big cheats should be pursued extensively though at the same time, I similarly feel that cheating at any level and scale, should be pursued.
After all, it is the tax cheats at my scale of operation with whom I am having to compete. And those of us who do pay their taxes appropriately, do so at higher rates than would be required if everyone actually paid their proportionate fair share. As a WSIB auditor informed me some years ago (a whole separate thread) that the difference in rates between commercial contractors and residential is largely attributable to it being easier to locate commercial projects and hence employers than the much more distributed residential construction industry. As a result residential contractors were more routinely able to escape payments. Read: those small tax avoiders are the reason why my rates are high.
We actually had a CRA inspector attend one our sites in late 2009 or early 2010. He came out of North Bay and specifcially attended our Parry Sound area site based on our municipal permit application. His visit followed the transition from GST to HST and he informed us that they were checking to ensure that builders, subs and suppliers made the transition properly rather than go underground or worse (for the homeowner), pocket the increase in taxable rates. Once I got over the shock of CRA having boots on the ground – and this was a remote site – I was actually happy that someone was helping actually find real cheats. (This is not the same as the College of Trades issue which has carried on in other threads).
Bottom line. I was raised to do the right thing and I have always extended that to my business relationships and corporate governance. Assuming that we are all working above board, we should be happy when government does the right thing and actually looks for real cheats that cost us all…and result in our paying more in taxes.
Perhaps CRA should consider allowing homeowners to write off a percentage of home renovations and service work? ( something like the ” Home Renovation Tax Credit” ) . This would allow for an even playing field when estimating the job.
I am constantly being asked to match prices submitted by “non-compliant ” companies who ask for a cash payment to avoid HST. With the new WSIB charges and HST percentage I submit, it becomes clear that the cards are stacked against the legitimate contractor.
Agreed John. My understanding is that the former eco-energy program (launched by the federal Liberals, killed by the federal Cons) was demonstrated to drive renovation work, resulted in moderate home-energy savings but most of all, the work was all conducted above board b/c that was the only way for the homeowners to receive a credit (by way of proofs of purchase). I recall ready that the mulitplier effect (ie. economic benefits vs cost to government) of this program was
In my view, sometimes incentives (and the resulting govt spending) are better than the often argued push to simply reduce all of our taxes which, as discussed above, sometimes has a perversely unintended impact (rather than benefit) on small biz and individuals.
Thanks Ben, so where do we go from here? As a taxpayer I shudder to think of the extra help that will be hired as civil servants in Ontario and at the Federal level at the expense of the public. The tax burden is already huge, but i worry about when these civil servants are eligible for retirement with their pensions and benefits…