About the underground economy

The underground economy refers to the illegal activities people or businesses do to avoid paying taxes.

Some examples of how people or businesses avoid paying taxes include:

  • “under-the-table” cash deals
  • a person who pays for a home renovation in cash
  • a business that hides some of its sales by sometimes using electronic cash register technology
  • a person or business that rents out a property and doesn’t report it as income

According to Statistics Canada, the underground economy accounts for more than $45 billion in annual economic activity in Canada and over $16 billion in Ontario alone.

How it hurts people and businesses

Here are the ways the underground economy hurts people and businesses.

Affects public services

When people and businesses don’t pay their taxes, they’re taking money away from things like hospitals, schools, roads and bridges.

Puts consumers at risk

When consumers purchase goods or services “under the table,” they could be liable if something goes wrong. For example, you could be on the hook if a worker is injured during a home renovation or if you unknowingly purchase damaged goods or shoddy service with no receipt.

Creates unfair and illegal advantages

A business that follows the rules will have a hard time competing with one that’s cheating on its taxes. That isn’t fair – a level playing field is important for all businesses.

What you should do

For people

Here’s how you can avoid the underground economy.

Always get a contract or receipt

Cash deals with no paperwork may mean a business isn’t paying its taxes. You may be liable if something goes wrong.

Do your research

Before hiring contractors, ask for at least three references and always check them.

By dealing with reputable businesses that follow the rules, you’re also helping workers. Honest businesses follow health, safety and other employment standards.

Correctly report your income when you file your taxes

This includes income from freelance or contract work, like money from sharing economy activities, such as home-sharing or ride-sharing.

By filing your taxes correctly and on time, you may get money back by claiming a number of Ontario tax credits and benefits.

Learn more about income tax from the Canada Revenue Agency.

For businesses

Report all income. It’s the law.

Businesses that underreport their sales will also have trouble proving the true value of their company to qualify for a loan, attract investors or sell the business.

Learn more about business or professional income from the Canada Revenue Agency.

Reporting underground economic activity

Avoiding taxes

If you think a person or a business is not respecting their tax obligations, report it to the Canada Revenue Agency.

Underground economic activity

You can report illegal underground economic activity, like someone selling unregulated tobacco. Contact Crime Stoppers at 1-800-222-TIPS (8477).

Correct your tax return or file taxes you’ve missed

If you’d like a second chance to correct your tax return or file taxes you’ve missed, you can apply to the Canada Revenue Agency to ask for relief of prosecution and penalties. Learn more about the Voluntary Disclosures Program.

Contact us

Have a question about the underground economy in Ontario? Contact us at undergroundeconomy@ontario.ca.

Updated: August 27, 2021
Published: April 05, 2018