Times are tough.
It can be tempting for a freelancer or a small business owner to take a contract job that stays off the books.
It’s called “working under the table” or “unreported income.”
And the government isn’t a big fan.
In fact, Revenue Canada says unreported income is part of the “underground economy” they’re cracking down on.
You might take an under-the-table job for a few reasons:
✓ Avoid paying income tax
✓ Avoid reporting on your Employment Insurance
✓ Administrative convenience for your employer/contractor
✓ Many other even-less-savoury reasons
The underground economy can also include failing to file tax returns, under-reporting income received, bartering or failing to report such employment income as tips and gratuities.
It’s all illegal.
The underground economy hurts
Revenue Canada says it’s watching out for all Canadians in increasing pressure on the underground economy.
When you fail to report income, you’re avoiding your tax responsibilities and that can:
✓ Increase the tax burden on law-abiding Canadians
✓ Inhibit cash flow to such programs as health care, childcare, employment insurance and pensions
✓ Undermines other business because it gives you an unfair advantage over freelancers and small businesses who comply with tax laws
If you’re in the business of working off the books, Revenue Canada is looking for you. The government’s tax boss is dedicating resources to combating the underground economy.
Its auditors and investigators look for unreported income, even when cash transactions are involved and proper records are not kept, by:
✓ Conducting a lifestyle audit when an individual seems to be living beyond his means
✓ Comparing an individual’s reported income or expenses to industry or regional averages
✓ Following up on leads received from informants, enforcement agencies and other tax authorities
✓ Comparing the information on tax returns to information received from third parties
Is it worth the risk?
Are a few hundred or thousand dollars worth the risk of getting caught?
You may even have gotten away with it a few times in the past, so you think you’re safe. (Remember, Revenue Canada can go back seven years to audit your returns.)
If you get caught, you can face penalties, court fines or even jail time — plus you have to pay the taxes you tried to evade, along with interest.
Do you think it’s worth it?