Question Period Note: UNDERGROUND ECONOMY (UE)

What is the Canada Revenue Agency doing to address the Underground economy (UE)?

• The Canada Revenue Agency (Agency) undertakes compliance actions to encourage tax compliance, protect the fairness and integrity of the tax system, and ensure a level playing field for all taxpayers.

• The Underground Economy (UE) activity negatively affects economic growth in Canada and reduces tax revenues. The Agency takes the UE very seriously and uses various methods to determine if individuals and businesses have reported all their income.

• The Agency is continually strengthening its approach to combatting the UE. The Agency’s Underground Economy Strategy for 2018-2021 seeks to:
o reduce the social acceptability of participation in the UE and encourage engaged citizenship;
o leverage third party data and information; and
o monitor emerging platforms and new business models with a special focus on the sharing economy and digital currencies.

• Canada’s UE is ranked among the smallest by the Organisation for Economic Co-operation and Development (OECD).

The underground economy (UE) includes any business activity that is not reported in full, including sales that are paid for under the table. Residential construction is the top contributor to the UE, followed by retail trade, and accommodations and food services. The UE continues to evolve as digital, global platforms and cryptocurrencies transcend traditional borders, and especially as COVID-19 accelerates digitalization.
Estimates from Statistics Canada indicate that the UE, as a share of the official Gross Domestic Product (GDP), has remained stable over the last decade. In 2016, total UE activity in Canada was estimated at $51.6 billion, which is equivalent to 2.5% of the GDP.
Budget 2015 announced a total of $118.2M over 5 years to combat the UE. In Budget 2017, the Government announced an extension of this previous funding: $28.9M per year, ongoing, for the Canada Revenue Agency.
The Agency is committed to reducing participation in the UE to ensure a fair tax system and a level playing field for all Canadians. The second three-year strategy to combat the UE centres on three broad themes:

• Social acceptability and engaged citizenship;
• Leveraging third-party data and information; and
• New business models and transacting in the digital age.

The CRA completed 24,772 UE-related audits between April 2015 and March 2020. The audits identified over $8 billion in unreported income, leading to over $3.4 billion in gross fiscal impact, which includes federal and provincial taxes, interest, and $493 million in penalties.
The Agency cooperates with industry, as well as the provinces and territories, to identify and address areas where the tax system and tax compliance might be affected by the UE. Implementation of the UE strategy focuses on the following:
• Stakeholder Engagement
• Research and Data
• Unnamed Persons Requirements
• Digitalization
• Legislative Updates
• Global Best Practices

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