Fact Sheet – Cash Income Is Taxable

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The following is now available on the CRA Web site:

Whether you are a hairdresser, a carpenter, a fisherman, a waiter or waitress, or anyone else who earns part or all of your income in cash, you should know that all of your income is taxable.

The Canadian tax system is based on voluntary compliance and you are responsible for declaring all of your income regardless of whether it appears on a T4 slip.

To ensure that all Canadians pay their share of taxes, the Canada Revenue Agency (CRA) conducts specific audits in areas where cash transactions are prevalent. The CRA has access to a number of tools and information to ensure the accuracy of the income reported.

Our matching program compares information on an individual’s tax return with information provided by third-party sources, such as employers, spouses, and financial institutions. In 2006-2007, almost 820,000 corrective actions generated additional tax assessments of $448.8 million.

Leads and assistance program

When Canadians are suspected of not meeting their tax obligations, the CRA is often contacted by informants, enforcement agencies, and foreign and domestic tax authorities. Last year, 22,575 of these leads were received and investigated by the CRA.

Missing documentation

If an individual is unable to provide reliable documents to support the income they have declared, the CRA will determine income using other available information. For example, if a restaurant server has neglected to maintain a record of the income he or she received from tips, the CRA will look at credit card and cash receipts or sales to determine the employee’s income for a determined period of time. It is the responsibility of the employee to maintain documents supporting their income.

Industry and regional averages

Through the use of sophisticated tools, the CRA may look at the average salary in a specific trade in a designated area. When an individual’s salary falls well below the average, or if the individual’s expenses are significantly above the average, the CRA may request more information and supporting documents.

Lifestyle or net worth audits

Does your lifestyle fit your income? The CRA may look at significant purchases you made during the audit period and compare them to your income. Do they match?

On occasion, when it is deemed necessary, the CRA may look at all of your assets, liabilities, and declared income to ensure that the declared amounts reflect the reality of your holdings.

I do not agree with the reassessment provided by the CRA; do I have any options for recourse?

Taxpayers always have a right to object to an assessment. They may ask for a review by the CRA’s Appeals Branch and if after this review they still do not agree, they may then ask a Judge of the Tax Court of Canada to rule on the amount assessed. These independent review options ensure that all assessed amounts are justified, fair, and based on the specific circumstances of the individual taxpayer.

I haven’t declared all my income in the past; is it too late to correct my tax information?

You may be able to correct your information using the CRA’s Voluntary Disclosures Program. The program allows people to come forward, correct their tax information, and avoid being penalized, criminally investigated, and prosecuted.

If you make a full disclosure before we start any compliance action or investigation, you may only have to pay the taxes owing, plus interest. If we come to you first, you could end up paying penalties and fines and even face jail time.

For more information about the Voluntary Disclosures Program, visit www.cra.gc.ca/voluntarydisclosures.

SOURCE: Canada Newsroom

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