Digital economy leading to more tax cheating

Expanded use of Internet sales “amplified the risk online that income is not reported or is under-reported by individuals and businesses especially since it cannot be identified using conventional techniques,” said a CRA report.

Auditors did not estimate lost collections from unreported sales.

The CRA “has confirmed a large number of platform participants do not report, or under-report, their income,” auditors wrote in an interim 2022 Underground Economy Business Plan.

“This interim plan recognizes emerging risks,” it said.

“Specifically, the following emerging platform economy non-compliance risks were identified: the anonymity of sellers, and difficulties with tracking income as sellers may earn revenue from multiple platforms given there is no information reporting requirement which would provide the CRA with an identification mechanism to address non-compliance by platform sellers.

“The Agency is aware during the COVID-19 pandemic some Canadians began earning income through the digital economy. Left unchecked, the underground economy would erode people’s faith in the integrity and fairness of Canada’s tax system.”

The Agency estimated it loses $11.4 billion a year in unpaid corporate tax, $8.7 billion in unpaid personal tax, $3 billion lost to offshore accounts and $2.9 billion in missing GST revenue due to unreported sales, a total $28.7 billion.

“A large segment of Canadian society does not see the underground economy as a threat to their standard of living and a significant number of Canadians are active in the underground economy without giving much thought to its consequences,” wrote staff.

“Public opinion research has demonstrated the negative impacts of the underground economy are not well known by many Canadians or are misunderstood.”

The Agency in a 2019 report Taxpayer Attitudinal Segmentation Research found a significant minority of tax filers — as many as a third — said they would cheat on their taxes if they thought they could get away with it. A majority, 52%, agreed with the statement: “I think Canadians pay too much.”

Researchers found 10% of tax filers surveyed agreed “a small amount of tax cheating is not so bad.” A total of 14% agreed with “I don’t think of tax cheating as a real crime” while 34% endorsed the statement, “I would pay cash for a service to get a cheaper price.”

Findings were based on agency interviews with 3,001 taxpayers nationwide.