CRA cracks down on cash businesses and ticket reselling, targeting the underground economy

This 6-part series explores Canada’s shadow markets – from cash-only home repairs and community “gift exchanges” to ticket reselling and underground entertainment. Through diverse perspectives, our journalists examine why Canadians participate in these alternative systems, the benefits they provide, and the challenges they create, while authorities balance enforcement with education.

By TUAN TRAN and B.W. HOMER

In recent years, the underground economy in Canada has seen significant growth, with the Canadian Revenue Agency (CRA) taking a more aggressive stance against unreported cash businesses and activities like ticket reselling.

Experts suggest that the CRA is using more sophisticated methods to track and target individuals engaging in these practices.

A report by Statistics Canada shows that in 2021, the underground economy contributed 2.7 per cent to the country’s total gross domestic product (GDP), amounting to $68.5 billion.

With British Columbia accounting for $11.1 billion of this total, authorities are focusing on cracking down on hidden income streams, such as cash businesses and resellers who avoid reporting their profits.

Sharon Perry, a chartered professional accountant, said the difficulty in having a good system to keep track of cash is the reason why cash-based businesses do not report their income.

“It’s just [an] honest error because they have bad systems,” said Perry. “[Or] they want cash because they don’t want to report it.”

Perry said failure to report income can result in serious consequences, including penalties, fines, and, in severe cases, jail time or criminal records.

The underground economy, which includes unreported cash businesses like ticket reselling, is a growing concern for Canadian authorities.

According to Statistics Canada, the GDP from underground economic activity in 2021 grew 4.8 per cent in real terms, following a decline in 2020.

The CRA, aware of this rise, launched a strategy in 2022 aimed at addressing this issue by leveraging third-party data sources such as Ticketmaster and Facebook Marketplace to identify individuals and businesses evading taxes. One area where the CRA has focused its attention is ticket reselling.

Perry said the CRA has the tools to track transactions more effectively in the digital age.

“They are also on social media. They have access to third-party platforms like Home Depot, Ticketmaster, Facebook Marketplace, and Airbnb, where they can pull data on who’s spending money,” Perry said.

Perry said resellers who fail to report their profits, especially when selling tickets for significant amounts, could face severe penalties.

In particular, the sale of high-demand concert tickets, like those for Taylor Swift, has drawn the attention of both resellers and the CRA.

“It was everywhere on social media, buying and selling tickets. If you buy tickets for $1,000 and sell them for $10,000, regardless of any life changes, you’ve made $9,000. That has to be declared.”

Perry said even smaller-scale reselling, like selling a $50 markup on a ticket, still needs to be reported as “it is almost like a business.“

Tim, a local ticket reseller in Vancouver who asked to not be named so he could speak more freely, said the penalties for tax evasion are not significant enough to deter ticket reselling.

“There’s no real reason for the ticket resellers to fear the CRA until they really put their foot down,” Tim said.

Tim explained that the fines for reselling tickets are often not significant enough to outweigh the potential profits.

He said for example that if a reseller sells a ticket for $10,000 and faces a $2,000 fine, they still pocket $8,000 in profit. Moreover, if they don’t get caught, the profit is even higher.

Tim said he believes the real challenge for resellers is not the CRA but the increasing restrictions on digital ticket sales.

“I think the regulations around digital payments will eventually end the ticket resale market,” he said. “With all the rules trying to stop people from reselling in large quantities, it’s going to become too difficult to make a profit.”

Tim said he is aware of the regulations and that he is supposed to report all this to the CRA, but he feels secure because he thinks there are “bigger fish to fry.”

Despite these views, Perry said it’s better to report income and claim allowable expenses to offset any tax liabilities.

“A lot of people that are buying and selling things for a profit, what they don’t often realize is that they can also have expenses that offset it,” said Perry.

Perry said when selling for a profit, it could be considered a business so part of a person’s internet, cell phone and vehicle for traveling can be potential offsets. Specifically for ticket reselling, Perry said you can potentially claim a room in your house as an office

“They’re better off reporting it and then claiming expenses because it’s going to be offset and you’re not going to have as much of a tax bill as you actually think that you will.”