Answering important questions about tax fraud in Toronto’s construction industry

Construction in Toronto is a huge business — a $1-billion business, to be exact. With so much money flowing into this industry, there are plenty of contractors looking to keep some cash for themselves at the expense of workers’ rights.

Being paid off the books in cash is one of the oldest practices in the business, and it’s a strategy some contractors use to evade taxes. Importantly, this common practice results in an “underground economy” where GTA workers have fewer rights on job sites — impacting their safety and equitable pay.

This practice is so widespread that, for many general contractors, it quietly becomes an understood expectation. So much so that not only do we see it on GTA housing projects, but even workers on government-funded capital projects like bridges and highways are being paid in cash under the table.

Stopping the fraud

The scale of this issue, and the general knowledge gap amongst the public, inspired Steven Weisman, Canadian director of research and special programs for the United Brotherhood of Carpenters & Joiners of America, to spearhead the Carpenters’ Union’s Tax Fraud Days of Action campaign with his team.

To give you a look into construction tax fraud in the GTA, blogTO sat down with Weisman to discuss this deceptive practice, outline its dangerous consequences, and explain how you can help curb this widespread problem.

Q: What does tax fraud look like in the Canadian construction industry? 

A: Most people understand that tax fraud involves businesses cheating the system to save money on the back end. However, many don’t realize that in the construction industry, tax fraud has dangerous consequences, resulting in unsafe job sites and worker exploitation in the underground economy.

Construction is a highly competitive industry, and players at all levels are always looking for ways to keep costs down.

Workers in the underground economy have no legal recourse if they are asked to complete unsafe jobs or work excessive hours. Thus, the practice of construction industry tax fraud results in worker exploitation.

Q: How does tax fraud impact construction workers? 

A: When employers in construction commit tax fraud, it doesn’t just save them money on the back end. It creates an environment where workers are forced to do dangerous jobs and risk their safety, without receiving the wages, benefits, and pension they are legally entitled to.

Say you have a carpenter, we’ll call him “Joe.” Because Joe is paid off the books in cash, he technically cannot be defined as an employee, [meaning] no health plan or employment insurance, no overtime pay, and definitely no pension.

By agreeing to be paid in cash, Joe has been sold on the idea of making “more” money without realizing he’s losing out on protections and benefits.

Many shady contractors also run unsafe job sites, so it’s quite likely Joe is working long hours in questionable conditions. [If] Joe gets injured on-site, he has no legal recourse nor coverage. So, even with an injury, Joe has to continue working, which may contribute to the lack of site safety for him and other workers.

All the while, by avoiding rightful payment of taxes and benefits, the contractor profits from Joe’s exploitation.

Q: And how does it affect the general public? 

A: On top of worker exploitation, this practice effectively steals money from Canadian taxpayers. $72.4 billion in tax revenue was lost in 2023 to Canada’s underground economy, with residential construction being the industry responsible for the largest share of these losses.

The billions of dollars flowing through Canada’s underground economy are monies that should be going back to our governments and supporting the essential services all Canadians depend on. This includes things like infrastructure, healthcare and education.

Imagine how many more hospitals or bridges we could build, or how many more social programs and services we could support if the country wasn’t being cheated out of billions. And at the end of the day, as Canadian citizens, we all pay our fair share of taxes — why should crooked contractors get away without paying theirs?

Q: What are some common misconceptions about undocumented workers, and how do these help perpetuate tax fraud? 

A: There is stigma around undocumented workers, and a big misconception is that they take jobs away from Canadians. Many undocumented workers don’t fully understand the industry or how employment works in Canada, they’re just trying to earn a living.

The true culprits are employers and contractors who co-opt these workers into the underground economy and take advantage of them.

Worse yet, by paying undocumented workers cash and retaining the money they should be paying in taxes, crooked contractors can keep their costs down. [This creates] an unfair playing field where honest contractors, who do right by their workers and pay all remittances properly, are unable to compete.

If undocumented workers are taking jobs from domestic workers, it’s only because dishonest contractors are creating a space where exploitation is profitable and labour laws are ignored.

Q: It can be hard to tell if you’re being taken advantage of. What are some signs workers can look out for? 

A: As previously noted, being paid in cash is the biggest red flag. If your employer is paying you in cash, just know that you are part of the underground economy and you aren’t protected as a result.

Additionally, a bookkeeping trick of some unscrupulous employers is to convince their employees to become “independent contractors.” This enables the employer to avoid treating you as an employee, excluding you from entitlements and legal protections.

To help support construction workers identify when they are being taken advantage of, our campaign theme invites them to “Ask yourself why?”.

Why is your employer so eager to define you as an independent contractor? Why don’t you qualify for workers’ compensation? Why aren’t you receiving overtime or vacation pay? The answer to these questions is most likely construction-industry tax fraud and worker exploitation.  

Q: What should workers do if they feel they are being taken advantage of? 

A: The Canada Revenue Agency has resources available to report suspected tax cheating. If you notice suspicious activity, similar to [the above], you can submit a lead online or by phone. 

Additionally, in an effort to establish more resources, the Carpenters’ Union has set up a dedicated email hotline for construction workers to report tax fraud in their workplace. Information can be sent to [email protected] and our team will follow up with the necessary contacts to investigate.

Q: What sort of legislative change is necessary to reduce tax fraud in the construction industry?

A: There are many steps governments can take to help combat this harmful practice and our Tax Fraud Days of Action campaign outlines several asks.

First, we’re calling on provincial governments to introduce General Contractor Liability laws, making the head contractor responsible for any illegal activity happening on their projects, including from sub-contractors or other organizations under their supervision.

Second, we believe that before contractors get paid for government-funded construction projects, they should be obligated to submit a full list of all subcontractors and employees, along with proof that all remittances have been paid properly and in accordance with the law.

These are some of the simple but powerful changes we are advocating for to bring transparency and accountability to the industry.

Q: How can workers and the general public lobby for these changes to be made? 

A: The most important thing you can do to stop tax fraud as a worker, is to know the protections you are entitled to and be able to recognize when an employer is trying to make you a victim of a tax fraud scheme.

Don’t accept cash payments, don’t accept being labelled as an “independent contractor” and use the previously mentioned resources to report any suspicious activity.

And the general public can get involved by visiting our website. The more awareness we bring to this issue, the more we can motivate our elected officials to put an end to the practice of tax fraud and [fund] vital services for all Canadians.