Do you pay your taxes every year? Chances are, you do. Why? Because there are severe consequences that you’d face if you didn’t.
So why should some construction contractors and builders get away with not paying their fair share of taxes?
According to the Ontario Construction Secretariat, the government loses up to $3.1 billion worth of revenue due to construction contractors not paying their fair share of taxes.
They lose an estimated $1.1 billion in income, $656 million in CPP contributions, $18 million in Employer Health Tax, $119 million in employment insurance, $340 million in WSIB payments and $832 million in HST revenues.
Imagine what we could build if contactors and builders paid their fair share? More funding for health care in Brampton, Windsor or Scarborough?
Recent initiatives by the provincial government to ensure COVID patients have priority access to our ICU beds lay clearer the critical needs of Ontario’s health care system.
Construction contractors manage to get away with not paying taxes using several underhanded tactics. First, many pay their workers cash and in doing so avoid paying all taxes, WSIB and CPP contributions. Others classify their workers as “independent contactors” instead of “employees.”
Independent contractors do not employ any workers and report themselves as self-employed.
Another unscrupulous category is that of the “Labour Broker” who, like an urban “coyote” ships workers around to various contractors, much the same as his southern cousin brutally ships undocumented workers across the Rio Grande River.
This allows contractors to skirt the necessary tax and WSIB obligations by lowering their income tax and payroll tax responsibilities. The trades that are most vulnerable to this illegal practice include floor covering installers, tile setters, painters and decorators and carpenters. Unfortunately, the underground economy is growing, as independent contractors are becoming a larger share of the construction labour force.
There are several severe ramifications that come from construction companies not classifying their workers properly and avoiding tax obligations.
The first is economic inequity.
When some companies avoid paying their fair share of taxes and others do not, this creates an unfair competitive advantage impacting those who follow the rules and do pay their taxes. In addition, when infrastructure is crumbling, hospitals are inadequate, and social security needs to be provided, these all cost money and who ends up paying more?
The average hardworking taxpayer does.
With record levels of government spending and debt on the books due to COVID-19 and the construction industry remaining largely unscathed, it’s important that the burden is not placed completely on the backs of hardworking individuals. Contractors who reap massive profits should shoulder their fair share as well.
The second ramification of tax fraud in the construction industry is a higher level of vulnerability to hard working construction workers. Paying construction workers off the books or as independent contractors makes contractors and builders less accountable.
As a result, jobsites can become more dangerous.
In addition, workers have little protections with regards to how long they work and are more easily susceptible to being cheated out of being paid properly.
This includes not being paid overtime, not being paid premiums or not even being paid at all.
The underground economy in Ontario can be seen as a wide spectrum, from the mundane, as in someone painting your basement “off the books” to the most egregious examples of human trafficking as happened here in Ontario not to long ago.
There are several solutions the government could take to ensure tax fraud and worker misclassification does not persist here in Canada.
First, the UBC has a wealth of knowledge and experience and could greatly add to the work of the CRA Underground Economic Advisory Committee.
In addition, the federal government could study the feasibility of imposing stronger and enforceable owner and prime contractor owner/liability as a deterrent to tax fraud and the underground economy. Provincial governments could research this issue, consult with impacted groups and make legislative recommendations within a specific period of time.
The Carpenters’ District Council of Ontario is leading the way against Tax Fraud in the construction industry and will be promoting Tax Fraud Days of Action until April 17, as seen on our website www.notaxfraud.com.
With a long economic recovery and large levels of uncertainty ahead, it is important that contractors pay their fair share, to ensure critical infrastructure can continue to be built and our economy makes a strong come back.
Mike Yorke is president of the Carpenters’ District Council of Ontario. Send comments and Industry Perspectives op-ed ideas to firstname.lastname@example.org.