2016 Ontario Economic Outlook and Fiscal Review
Chapter II: A Balanced Path to a Balanced Budget

Section C: Addressing the Underground Economy and Maintaining Tax Fairness

Participation in the underground economy creates an unfair advantage for businesses that do not follow the rules. When businesses fail to report income for tax purposes or avoid sales taxes, the result is lost funding for the key public services that families rely on and that build Ontario up. Consumer and worker safety is also threatened when businesses ignore regulatory obligations. This is why the government’s compliance-focused measures are critical — generating more than $1.1 billion in revenue since 2013–14. Ontario is also committed to working with partners to address the issue of contraband tobacco through enforcement and health promotion activities.

2016 Budget: Jobs for Today and Tomorrow

The 2016 Budget outlined a number of measures to combat the underground economy, including:

  • Extending the residential roofing pilot project for an additional two years. This pilot helps ensure compliance with health and safety obligations and informs consumers and workers about the risks associated with participating in the underground economy;
  • Strengthening the Province’s ability to identify and address the underground economy through enhanced information sharing;
  • Partnering with natural gas utilities to help homeowners work with certified energy auditors and reputable contractors; and
  • Addressing the issue of contraband tobacco through a balanced approach of partnership and compliance activities.

Making Progress

The government has made significant progress since the 2016 Budget. Through ongoing enhanced compliance-focused measures, Ontario has generated more than $1.1 billion to date — representing an increase of more than $230 million to the amount reported in the 2016 Budget.

In partnership with the Canada Revenue Agency, Ontario has established specialized audit teams to target sectors at high risk of underground economic activity. These teams consist of specialized auditors who use innovative enforcement tools to help ensure compliance with tax obligations.

The government is also moving forward on the recommendations made in the final report “Addressing Ontario’s Underground Economy in the Residential Construction Sector,” submitted to the Minister of Finance in August. This report was informed by extensive consultations during spring 2016 with the residential construction industry on issues related to the underground economy.

Ontario is proposing amendments to the Ministry of Revenue Act to strengthen the Province’s ability to identify and address industry sectors that are at high risk for underground economic activity. More effective information sharing and data analytics across Ontario government ministries and entities, and with the municipal and federal governments, will enable the Province to better target its enforcement efforts and strengthen consumer and worker safety and protection.

The government has also executed agreements with natural gas companies that will encourage homeowners to work with certified energy auditors and reputable contractors as part of the Province’s investments in home energy audits and retrofits under the Green Investment Fund.

Moving forward, the government will continue to find ways to raise awareness and educate the public on the risks and potential liabilities associated with participation in the underground economy.

Electronic Sales Suppression

When businesses use electronic sales suppression technology, they gain an advantage by underreporting business income and retaining taxes paid by consumers.

Electronic sales suppression is the use of hard-to-detect software or devices that manipulate sales information recorded by point-of-sale and electronic cash register systems.

Building on amendments to the Taxation Act, 2007, that made the sale, use or distribution of electronic sales suppression devices an offence, the government will launch a pilot project in the retail and hospitality sectors to test security software that will identify the use of electronic sales suppression technology.

Contraband Tobacco

Ontario has successfully delivered on a number of key initiatives. The government has:

  • Launched cross-designation pilot projects with four public health units to help make tobacco retailer inspections in these locations more streamlined and efficient;
  • Implemented raw leaf tobacco baling or packaging and labelling requirements after consultations with industry and stakeholders; and
  • Continued to work with law enforcement agencies, such as the Ontario Provincial Police’s Contraband Tobacco Enforcement Team and other organizations, to address organized crime’s role in contraband tobacco in the province.

The Province will also be moving forward with:

  • Enhancing the Tobacco Retail Dealer’s Permit program, to ensure that all tobacco retailers in Ontario are properly registered, and engaging retailers and retail associations in this process; and
  • Proposing additional amendments to the Tobacco Tax Act and regulations to further enhance its raw leaf tobacco oversight by expanding regulation-making powers and strengthening compliance and enforcement provisions.