Paying cash – Underground economy crackdown

Posted on: December 7th, 2015 by Real Estate Accountants

12255915476_3130dcb153_zCash payments “under the table”? Requests from tenants or tradespeople to accept cash while running your real estate investing business? The underground economy is thriving in Canada, and the Canada Revenue Agency is focusing on what Statistics Canada estimates is 1.3% of Canadian GDP.

And, who do you think that they are targeting? Likely industries, based on the related Advisory Committee for this initiative, are home building, restaurant, and retail industries.

In 2013-2014, the CRA audited almost 8,000 underground economy files, and 83% of them resulted in a tax assessment that identified about $718 million on unreported income.

How are they targeting and finding these cash payments? They are:

  • Creating underground economy specialized teams with advanced training
  • Implementing underground economy centres of expertise
  • Focusing presence in high-risk sectors, conducting advanced audits, books and records reviews, letter writing campaigns, and verification
  • Using data mining models
  • Using automated systems to match information slips, and corporate business numbers against tax returns
  • Using informant leads
  • Running special projects targeted at industries with high levels of underground activities (such as the recent real estate teams)

But, the underground economy persists. Recently, I wrote an article for The REIN Real Estate Report magazine covering this very topic, from the perspective of the business person who has been asked to pay cash. A client wanted to know “What argument can I use to get a receipt?” For the full article, see:

Why Paying Cash Doesn’t Pay

So, if a CRA crackdown on the underground economy isn’t enough to scare the “cash business”, the potential advantages of being above board, as outlined in the article, may be another route to take.

George E. Dube, CPA, CA

George E. Dube, CPA, CA
Real estate accountant, real estate investor, speaker, author

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