Government programs aim to reduce underground economy with education and enforcement
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 CATHY MCCALLUM
Abdul Malik (not his real name) is a recent asylum-seeker from Afghanistan. Since coming to Canada, he has been working periodically for a friend. His friend pays him no benefits, has no WorkSafe coverage for him and does not make deductions for Canada Pension Plan or Employment Insurance.
Malik says that in the Afghanistan he left three years ago, not much of formal economy existed.
What do the federal and provincial governments know about the underground economy (UE)? Are they aware of people like Malik who have no experience of living and working in a country with a functioning economy?
If so, what are they doing to motivate, teach and help immigrants and Canadians in general become participants in the formal economy?
The government is indeed aware of the underground economy.
Erin Hughes, from the B.C. Ministry of Finance, said in an email that the province works with the Canada Revenue Agency (CRA) to combat hidden or unreported activities in alignment with the federal underground economy strategy.
Statistics Canada estimated the underground economy in Canada to be $72.4 Billion in 2023 or 2.5 per cent of Gross Domestic Product.
In British Columbia, the underground economy was estimated to be $11.7 billion in 2023.
The informal economy is most prevalent in sectors where cash transactions are common such as hospitality, retail and real estate and construction, including home renovations. Through the CRA Leads program, people can anonymously report suspected underground economy activity.
The B.C. finance ministry in conjunction with the CRA has a multipronged approach in encouraging people to participate in the formal economy rather than the underground economy.
They try to motivate taxpayers by clearly showing the connection between paying taxes and the services provided in society including education, and healthcare.
They work on improving tax-legislation and administration to make tax filing and payment easier.
For newcomers to Canada, the CRA provides information on income taxes and benefit payments publicly on its website. The federal agency also offers webinars dedicated to newcomers to Canada.
The B.C. government also has a newcomers’ guide in multiple languages. The guide includes content on finding employment, provincial employment laws and worker rights.
The CRA has a program to help those who may unintentionally participate in the cash economy. It targets people who are starting a business, as well as new residents in Canada who are not familiar with the Canadian tax system.
The federal voluntary disclosures program grants relief from prosecution on a case-by-case basis to taxpayers…who voluntarily come forward to fix errors and omissions in tax filings before the CRA has contacted them.
For individuals and business owners who demonstrate willful and deliberate non-compliance, the CRA has specialized teams and sophisticated tools.
For example, there are underground specialist teams which focus on the construction industry. Other teams detect the use of electronic suppression of sales (Zapper) software that hides sales in food and alcohol sectors. Those who are caught face audits and criminal charges.