There has been some talk recently about CRA having a 3 year strategy about focusing on the “underground economy”. I have read the material that CRA has sent out. If you are wanting details, I have put the link at the end of this blog. As I have a few clients that I think may be at risk, I thought I would give my humble opinion on how to minimize your risk.
First of all, CRA defines the underground economy this way:
We consider the UE to include both unreported and under-reported sales or income, which may involve:
failure to file or register;
failure to report a business activity;
failure to report part of a business activity or income; or
failure to report employment income.
The underground economy includes economic activity that is unreported for tax purposes. We consider the underground economy to include both unreported and under-reported sales or income, which may involve: failure to file or register; failure to report a business activity; failure to report part of a business activity or income; or failure to report employment income.
What does that mean, exactly? And why would this be different than any other type of tax issues? Why does it have a special name?
Those are all good questions that I would love to hear a tax lawyer or accountant chime in on, if only to see what their opinion is. We have had some exposure to this by way of our clients getting audited. There are likely a few areas that are more exposed, more at risk. They include online web businesses, construction, cash based businesses.
From our interpretation of the documents, the underground economy initiative is going to focus in on those clients that receive money and it is not properly reported. So, for example, if you are working “cash under the table”, this could be considered the underground economy. If you have an online business, and you are not properly collecting taxes, or declaring monies, this could be considered the underground economy.
The tax laws are constantly changing, but sometimes it feels not fast enough to allow for the technological changes that seem to be happening at a faster rate. With more options on how you receive your money, it is no surprise that people are under declaring their economic benefits. And whether they do it intentionally or not, they are still help liable.
It is always a risk for you if you do not report your income properly. You need to make sure your books are being done properly, especially if you are in an industry that has the slightest of risk. At On-Core Bookkeeping, we consider those industries to be any of the following:
online web businesses
any business where you deal with cash
Our recommendation to business owners is to always know your responsibility.
As the business owner, you are responsible for all costs.
You cannot afford to assume anything when it comes to your books.
This is your company. You are legally responsible.
Make sure that you are doing what you need to do.
“The underground economy in home renovations exposes homeowners to significant risk they often don’t understand and that can threaten their financial security. Furthermore, legitimate businesses suffer when they are forced to compete with those who cut corners, and don’t pay their fair share of taxes. We are pleased to be working with the Canada Revenue Agency to combat the very real harm and risks posed by the underground economy.”
Kevin Lee, CEO, Canadian Home Builders’ Association
http://www.oncorebookkeeping.ca/wp-content/uploads/2015/12/cra.jpg6001000oc_adminhttp://www.oncorebookkeeping.ca/wp-content/uploads/2016/06/logo-1.jpgoc_admin2016-06-16 09:36:402016-07-02 17:54:35Are you part of the "underground economy"?