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Underground economy costs more than just dollars

How much underground activity is there in the Canadian Residential Construction industry? $12.5 billion, according to a new report by Statistics Canada.

That number represents a lot of lost tax dollars for the Canadian government and theoretically at least a lot of extra taxes for legitimate companies and citizens.
The Canadian Home Builders’ Association (CHBA) is an active member of the Underground Economy Advisory Committee and contributed to the development of the Canadian Revenue Agency’s (CRA’s) Underground Economy Strategy.
CRA is continuing a campaign against the underground economy, rightly targeting cash operators rather than honest businesses. A July 12th Financial Post report stated that CRA investigators recently reviewed 8,396 municipal building permits in an unspecified municipality and found 2,751 unregistered building contractors from whom they were able to collect some $4.5 million in taxes, $559,000 in interest payments and $843,000 in penalties.

If an underground operator has gone unnoticed by the taxman to date, he or she may find that they cannot evade their fair share of taxes for long. The CRA can conduct “lifestyle audits” on people to ascertain if their lifestyle is commensurate with their known income stream. CRA can charge back taxes for a number of years, if they sniff out something that smells funny, and of course they charge interest and penalties.

More importantly for you, the person paying the cash operator, you should know that cheap can actually be very expensive.

Why is it more expensive? Cash transactions cost, especially when things go wrong, if a workman gets hurt on your property, or the right permits are not pulled—there could be a fine if you are caught, increased insurance premiums if something goes wrong and the big cost is in shoddy work. If the work is not done right there will be problems and fixing problems costs a lot more than doing it right the first time. The homeowner does not have a legal recourse if they use an illegitimate business since they do not have a signed contract. Therefore they have to call legitimate companies to come in and fix the mess at their own expense.

If you are building in Durham Region and you want to ensure that you have a legitimate operator, go to and use one of the construction companies listed there. Contractors on that site have all agreed to adhere to a code of ethics, have the appropriate business qualifications and they provide written contracts.

About the author: Anita Devries  is executive officer of the Durham Region Home Builders’ Association, voice of the residential construction industry in Durham.

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