Aug 16, 2010- 4:23 PM
We identify a challenge to preparing for economic recovery lies in tackling the underground cash economy. Ensuring that those who should be paying taxes are doing so is essential to recovery.
The Ontario Construction Secretariat estimates that average annual government revenue losses (municipal, provincial and federal combined) from underground activity in construction average $1.4 - $2.4 billion in Ontario alone. The main Canada Revenue Agency (CRA) response has been the “Contract Payment Reporting System” (CPRS).
An evaluation of the CPRS by the agency itself concluded that it is not effective in the construction segment of the underground economy. Underground operators, by definition, operate in cash only, outside the legitimate economy.
The CPRS simply makes such cash-only operators even more careful about the ways in which they conduct their activities by not forcing them to register.
Many firms and individuals claiming to be exempt from collecting the GST/HST under the $30,000 annual sales threshold are, in fact, working in the underground economy.
Not having to register to be exempt helps those firms to stay below the radar screen of tax compliance and enforcement authorities.
With the introduction of the HST in Ontario, further rapid growth in the underground “cash” economy is inevitable unless governments act. The CPRS should be replaced. All firms and individuals in the construction industry should be required to register for a business number, even if they wish to take advantage of the HST exemption for companies which operate below the $30,000 annual sales threshold.
The introduction of a permanent HST Home Renovation Tax Rebate by the federal government would do much to address the problem of the underground “cash” economy in home renovations. This has been demonstrated over the past year by the success of the Home Renovation Tax Credit in getting those undertaking home renovation projects to use legitimate contractors and maintain proper documentation.
Homeowners should be aware of the risks they face when hiring illegitimate contractors. Not only do you not have an enforceable contract, you may be liable should any injuries or damage occur to the worker, your neighbour’s property or your own home. It is simply not worth the risk.
Finally, if an individual or firm is comfortable “sticking it to the tax man,” they are likely just as comfortable “sticking it to homeowner.” Visit the Sudbury & District Home Builders’ Association at www.sudburyhomebuilders.com for more info about how to hire a reputable contractor.
Laura Higgs,
executive officer
Sudbury & District Home Builders’ Association
