The Federal government is extremely concerned about the underground economy. It attacks the fairness and integrity of the tax system and makes it difficult for the government to raise the revenue it needs to pay for the programs and services Canadians want.
The government devotes resources to improve its understanding of the underground economy so that efforts at combating it are as effective as possible.
With respect to the size of the underground economy, the government has closely followed the work of academics and economic researchers. A key finding is that it is extremely difficult to measure the size of the underground economy. This is not surprising as by definition it consists of “hidden” economic activity. While several approaches have been developed to indirectly estimate this hidden activity, each has such serious limitations, limited confidence can be placed in the resulting estimates of the size of the underground economy and the associated revenue loss to the federal government.
The government has used the information obtained within its limitations to better focus its actions to reduce underground activity and recover lost taxes. Revenue Canada`s actions in respect of the underground economy are an integral component of its balanced approach to tax fairness that dedicates resources to both facilitate compliance for taxpayers as much as possible while implementing responsible enforcement.
Revenue Canada has taken the following specific actions with respect to the underground economy: In 1993, 1,200 additional employees were assigned to work on the underground economy and the 1996 budget provided resources for an additional 800 auditors. More recently, the 1998 budget introduced a mandatory contract payment reporting system for the construction industry and federal government contracts, to encourage the self-employed to voluntarily report all of their income and to help Revenue Canada better detect unreported income.
The government will continue to both monitor and fight the underground economy through Revenue Canada`s underground economy initiative, voluntary compliance programs and other enforcement activities.