Description: Statistics Canada reported last week that it estimates Canada’s underground economy was approximately $70 billion in 2021. This unreported activity was up about five percent over 2020. The largest components of the underground economy are residential construction, at 35 percent, followed by real estate rentals at 12.7 percent and retail at 10.5 percent. Statistics Canada did not include the illegal drug trade in its estimates.
Date: October 6, 2023
Source: ctvnews.ca
Discussion points:
1) Were you surprised by these figures on the underground economy?
2) Would you consider these “under the table” activities to be fraud? Why or why not?
3) Page 3-13 of Wiley’s Financial Accounting: Tools for Business Decision-Making describes how the Canada Revenue Agency (CRA) normally collects income tax instalments from businesses. If you were a decision-maker at the CRA, what might be some approaches you would recommend to bring some of the underground economy under control?
Andrew Leslie, Jessie Kpai, Samuel Johnson, Presley Warren-Daigle
1) Yes we were surprised that real estate and construction made up such a large portion of transactions. Although this does make some sense given that Canada is known for having fairly relaxed laws around real estate transactions. It may also be effected by how these transactions were investigated for the official estimation. Since the numbers are estimated, it may be completely off, or missing entire segments of the black market in Canada.
2) Yes, these types of transactions are all forms of tax fraud, since they are unreported. They also could be fronts for other crimes, such as money laundering.
3) Since the two largest sectors found were real estate and construction, the CRA could make stricter laws around around reporting revenues in those industries, and focusing more audits on them.
Group 14
1) Were you surprised by these figures on the underground economy?
We were very surprised to see such a high increase of the underground economy from 2020 to 2021. It was a lot higher than what we were expecting.
2) Would you consider these “under the table” activities to be fraud? Why or why not?
We consider these “under the table” activities to be fraud because what they are doing is going unreported and therefore cannot be taxed. Because they are not paying taxes on their earning that is considered tax fraud. As well a lot of underground economy activities are illegal to begin with.
3) Page 3-13 of Wiley’s Financial Accounting: Tools for Business Decision-Making describes how the Canada Revenue Agency (CRA) normally collects income tax instalments from businesses. If you were a decision-maker at the CRA, what might be some approaches you would recommend to bring some of the underground economy under control?
Some approaches would be to have companies pay a higher rate than the previous year average, to account for these unreported economic transactions. As well making the income tax fluctuate with the percent of the GPD that hasn’t paid taxes. So, when the percent is high, companies pay more and when the percent is low companies pay less on income tax.
Olivia McCray
Laura Leblanc