Underground economy - Canada.ca (2024)

Understanding the underground economy

In Canada, the majority of individuals and businesses file their tax returns and pay what they owe, in full and on time. But, as in other countries around the world, there are some who try to avoid paying what they owe by operating in theunderground economy. Making sure taxpayers meet their tax obligations ensures the tax system is fair for everyone.

The underground economy includes economic transactions that are unreported, resulting in failure to comply with tax laws administered by the Canada Revenue Agency (CRA).

Whether you earn income asan employed individual, a self-employed individual, or a business, your income is taxable. There are no exceptions. You must report it to the CRA, even if you:

• are an employee who is paid in cash and does not receive a T4 slip, Statement of Remuneration Paid
• are a contractor receiving cash payments
• earn extra income on the side of your full-time work (for example, by renting out a room or providing a ride-sharing service)
• receive tips or gratuities in addition to your regular income
• exchange goods or services (bartering with another worker)
• are a self-employed individual providing services without having a registered number with the CRA
• use gift cards or gifts as payment or incentives

Paying your taxes helps strengthen your community and your country by funding the many services that Canadians use every day. Taxes pay for Canada’s world-renowned programs and services like health care, education, parks, the Canada child benefit, old age security, and employment insurance.

Follow these links for more information:

Taxes

Reporting income

T4 slip

How you are affected by the underground economy

All Canadians are impacted when someone participates in underground economy activities.

Underground economyactivity:

• negatively affects economic growth in Canada
  • businesses that operate legitimately struggle to grow when competing with those that operate under the table
• reduces tax revenue for all levels of government
  • reduced tax revenue reduces governments’ ability to provide the services and benefits Canadians expect and enjoy
• increases the tax gap
  • the tax gap is the difference between the taxes that would be collected if all tax obligations were fully met and the taxes that are actually collected

For more information, refer to Tax Gap: A brief overview.

If you participate in the underground economy

Your participation in the underground economy may lead to serious consequences, such as:

• criminal charges
• prosecution
• court-imposed fines
• jail time
• a criminal record

For more information, refer to the CRA’s criminal investigations process.

What you can do to help and protect yourself

Here are some ways you can be part of the solution:

As a customer of a business

• Avoid businesses that promise lower prices if you pay cash and don’t get a receipt
• Hire home contracting businesses that give you a written contract to protect yourself against incomplete or poor-quality work and cost overruns

As a business owner

• File your tax returns
• Report all your income
• Register your business for a goods and services tax / harmonized sales tax account when required

As an individual

• Make sure you receive a T4 slip to get all the benefit payments you are entitled to
• Report all income you have received, even if it is not reported on the T4 slip as part of an employment position

Anyone

• Anonymously report suspected underground economy activity through the CRA’s Leads Program
• Voluntarily come forward to fix errors or omissions in your tax filings through the CRA’s Voluntary Disclosures Program before the CRA contacts you about it

How the Canada Revenue Agency responds to the underground economy

The underground economy continues to evolve alongside changes in digital technologies like global platforms and cryptocurrencies. For this reason, we published the 2022+ Underground Economy Strategy, which guides our approach to combatting this changing environment.

The 2022+ Underground Economy Strategy

The 2022+ strategy gives an overview of our efforts to address the underground economy and reduce related tax non-compliance. We will continue updating the strategy as we adjust our approach to focus on changing priorities.

The 2022+ strategy uses a model of three pillars to minimize underground economy related tax non compliance. These three pillars align with our commitment to apply the right intervention to the right risk.

Pillar 1: Identify activities

To understand the size of the underground economy, the first step is to identify where the related activities take place and who is potentially or actively involved. We are continuously researching and studying where risks of non-compliance are present or emerging.

Pillar 2: Prevent activities

By identifying the participants of the underground economy, the CRA is better positioned to design the most effective preventive measures for each segment and sector.

Pillar 3: Address activities

We continue to increase our efforts to address non-compliance with individuals and businesses.