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Residents of Toronto understand better than most that the current fragility of the economy has trickle down effects. In the simplest terms, when money gets tight, services take a hit, and over the last few months in this City, we have witnessed first hand what that means; reduced frequency from the TTC, schools cutting programs and selling land, healthcare backlogs, and failing infrastructure are among some of the most pertinent examples.
For governments to combat these negative trends, the collection of taxes represents one of their most important revenue streams, but what happens when one of the country’s largest industries uses loopholes to avoid taxes altogether? In the construction industry, tax fraud and evasion has become so pervasive that the impacts are being felt nationally, and the trend is not a recent one.
The leading watchdog documenting this crisis is the United Brotherhood of Carpenters & Joiners of America (UBC), one of North America’s largest building trades unions, representing over half a million members. Every year, in the month of April, UBC attempts to raise awareness about tax fraud in the construction industry through a campaign called Tax Fraud Days of Action. This year’s campaign ran from April 12th - 18th, and on the Canadian front, saw the group lobbying with Municipal, Provincial, and Federal governments to take action and confront this problem before it gets any worse.
Digging into the details on how tax fraud is an issue of national consequence, UBC cites a number of metrics that highlight the gravity of the problem, and how it has grown to become so pervasive, particularly in the construction industry. Beginning with the bottom line, the Ontario Construction Secretariat has reported that the Federal government loses out on $3.1 billion in tax revenue due to construction industry-related tax fraud. Included in that total is an estimated $1.1 billion in income tax, $823 million in HST, and $654 million in CPP contributions.
Construction as an industry is predisposed to this issue for a number of reasons that relate to the grey economy, a term that refers to areas of the economy that aren’t monitored or taxed by the government. At the macro level, construction companies of varying sizes have found success in avoiding taxes by hiring workers as independent contractors, rather than hiring them formally on payroll, and paying them under the table. At the micro level, small scale home improvement projects that see homeowners pay labourers in cash have the same effect, with the income made by workers generally not being declared.
The consequences are threefold. For one, workers employed in this capacity lose out on benefits and are not protected, and in the event of an accident, would assume all medical expenses. Secondly, contractors that do employ their workers formally and pay taxes gradually lose the ability to offer services at a competitive cost compared to fraudulent contractors, which hurts the industry further. Finally, the loss in tax revenue has ripple effects on the Federal budget, and can have direct impacts on funding for healthcare and infrastructure.
To combat this issue, UBC’s Tax Fraud Days of Action this year were focussed on advancing several goals. In the immediate term, the organization pushed to be added to the CRA’s Underground Economy Advisory Committee, allowing them to get more closely involved in the federal response to tax fraud. UBC also pushed for more long term reforms including the implementation of a ‘fair wage’ policy that would prohibit doing business with contractors that discriminate against their workers, and a study into the feasibility of new legislation that could impose greater liability for tax fraud.
While change doesn’t happen overnight, UBC recognizes that it starts with awareness. The organization will return with Tax Fraud Days of Action next year, and continue monitoring the issue and its impacts while the different levels of Government figure out their strategies.
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UrbanToronto has a research service, UrbanToronto Pro, that provides comprehensive data on construction projects in the Greater Toronto Area—from proposal through to completion. We also offer Instant Reports, downloadable snapshots based on location, and a daily subscription newsletter, New Development Insider, that tracks projects from initial application.
