How Does CRA Figure Out You Are Skimming? Canada 150 Recommendation #102

Monday’s= Small Business

Working under the table and taking cash jobs all refer to making money but not reporting the income to the taxation authorities. Of course this is illegal and is called tax fraud.

The question that I am asked by business owners is “How is the government going to figure it out?” There are a couple of methods.

Gross margin analysis — CRA will look at how much money you make on selling your products. If you are reporting all of the expenses of your business but not all of the income, then your margin, the difference between what you charge and what it costs you, will be smaller than expected and CRA will have a question about that.

Net worth — CRA may take a look at what you have, your cars, house, cottage etc. and wonder how you could have all of that stuff when you report so very little income. This is the type of analysis that is easy to do if you are not reporting much of your income.

Tips — perhaps one of the customers who paid you in cash starts thinking about how unfair it is that they have to pay tax on the money you make and you are not reporting all of your income. Most people will see that you are asking for cash because you are committing tax fraud and they may not like the idea of being an accessory to tax fraud, so they call CRA and turn you in.

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