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CRA Announces Three-Year Underground Economy Strategy

by Mike Godfrey, Tax-News.com, Washington

02 December 2014


The Canada Revenue Agency (CRA) has announced a new three-year strategy to combat the underground economy (UE) and reduce its impact on the tax system.

The strategy, entitled Reducing Participation in the Underground Economy, focuses on three broad approaches. It aims at further refining the CRA's understanding of the UE and at reducing the social acceptability of participation. The CRA will also deploy a range of initiatives to encourage compliance and reduce participation in the UE.

The Agency will develop measures that will allow it to gauge progress and evaluate the cumulative impact of the strategy.

The CRA considers the UE to include both unreported and under-reported sales and/or income. It may involve a failure to file or register, to report a business activity or income, or to report employment income.

In 2011, Statistics Canada estimated the value of the UE at 2.3 percent of gross domestic product (GDP). In 2013-14, the CRA audited almost 8,000 UE files, 83 percent of which resulted in a tax assessment and the identification of CAD718m (USD628.7m) in unreported income.

Revenue Minister Kerry-Lynnde D. Findlay said: "If left unchallenged, the underground economy will erode the integrity of Canada's tax system. The business environment is ever-changing, and the CRA must stay nimble. We must refine our compliance actions and we must evolve our strategies. That is why our Government is joining forces with industry and taking action."

"Our three-year plan includes measures to reduce the social acceptability of participating in the underground economy, target high risk sectors to improve and promote compliance, and ensure a level playing field for hard-working Canadian entrepreneurs and taxpayers. Working with public and private sector partners, our underground economy strategy charts a clear course to enhance our ability to detect and address UE activities in high-risk areas of the economy. This sustained, focused, and collaborative effort is the first of its kind and promises to impact the underground economy in a significant way."

Findlay made the announcement a week after she hosted the inaugural meeting of her new Underground Economy Advisory Committee. The committee is tasked with advising the Minister on the current UE trends, identifying emerging risks, improving understanding of compliance behaviour, and with contributing to the development of new compliance tools. It will meet twice a year or when convened by the Minister.

TAGS: compliance | tax | business | tax compliance | tax avoidance | revenue guidance | gross domestic product (GDP) | entrepreneurs | audit | tax authority | Canada | revenue statistics | trade association | trade | Work | Economy

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