Majority of Canadians would pay under the table to avoid tax: survey

Death and taxes. The two things we most fear and yet can’t avoid.

That doesn’t mean many of us don’t try.

When it comes to underground economy, it seems Canadians aren’t above trying to outsmart the feds by paying cash for a tax-free product or service.

A new LegerWeb survey, conducted on behalf of the tax-preparation firm, H&R Block, found 53 per cent of Canadians were eager to engage in an under-the-table transaction if it spared us the GST.

It’s an attitude that hasn’t changed since the last time Leger asked us the same question in 2012. At that time, 55 per cent of respondent said they would pay cash to avoid paying tax.

But, before you think we’ve totally lost all our morals as a nation, you may be pleased to learn that the majority (58 per cent) of us think that paying cash to avoid sales tax is wrong. That figure is up 30 per cent over 2012.

And we have little mercy for small business owners who use sales suppression software or other systems to avoid the tax man with nearly 80 per cent saying these business owners should be charged criminally.

H&R Block estimates the size of Canada’s underground economy as somewhere in the range of $40 billion a year. About 17 per cent of Canadians said they have been paid under the table for services, according to the survey.

Caroline Battista, H&R Block’s senior tax analyst, agrees you’d be hard-pressed to find someone who wants to pay more tax.

Avoiding tax hurts us all

But what many people don’t think about is the larger repercussion tax evasion can have on the country.

“We want to pick up the phone and call the police, or call the fire department, when we need it, and all of that is paid through our taxes,” she said.

On a personal level, you can bet it will be extremely painful if you’re caught cheating on your taxes by claiming a lower income than you actually earned. Expect to pay a 10 per cent penalty to both the provincial and federal governments on the total amount avoided. That’s on top of the outstanding taxes.

You may also be unknowingly cheating yourself out of a more comfortable retirement. Wait staff, for instance, who fail to claim tips as part of their income reduce the amount of money they can contribute to Registered Retirement Savings Plans (RRSPs) and are eligible for less money through the Canadian Pension Plan (CPP) than higher earners.

Battista said the government expects waiters to claim between 100 and 400 per cent of their total earnings in tips. That means, if you earned $8,000 working at the local bar over the year, you should claim another $8,000 to $32,000 in tips.

“It may be tempting to not claim it and have an extra beer on Friday night, but you do need to claim those tips,” said Battista.

According to the survey, 46 per cent of Canadians say tip money should not be considered income.

Maurice Levi, finance professor at the University of British Columbia’s Sauder School of Business, says tax evasion and tax fraud in Canada costs the federal government about $17.9 billion a year.

Businesses that offer services or products tax-free in exchange for cash make up a small portion of that loss. The majority is linked to illegal markets that are facilitated by cash transactions, such as the drugs and prostitution trades.

Levi is in favour of eliminating currency all together as a means of saving money and eliminating crime.

He admits the removal of cash from the monetary system isn’t going to completely stop the problem.

“Some tax evaders would still continue to try to fly below the radar, and undoubtedly the drug trade and other underworld markets would still find a way to subsist on some level,” Levi said in a media release issued by the university.

However, he added, “There is little doubt these activities would inevitably shrink substantially in a world without cash.”

According to Levi, revenues accrued by the federal government by printing and supplying money to the market is in the range of $4.4 billion per year. The figure is based on the profit equivalent to the face value of the money itself minus the cost of physically making it.