Questions and Answers

Tax Fraud Days of Action is a United Brotherhood of Carpenters and Joiners of America (UBC) political action campaign that takes place annually in April. The campaign seeks to raise awareness about and take action against worker exploitation and corrupt business practices in the construction industry. This year’s campaign runs in the U.S. and Canada from April 13-19, 2024.

Construction industry tax fraud is an intentional, corrupt business practice used occurs when construction companies engage in corrupt business practices to boost profits and reduce costs at the expense of workers, taxpayers, and law-abiding businesses. Construction industry tax fraud has become so common that, for many businesses, it’s a part of their business model, involving players at all levels: owners, developers, general contractors, subcontractors, and labour brokers.

The “Ask Yourself Why” theme is focused on asking tough questions about shady business practices in the construction industry. For instance, construction workers paid in cash should ask why they earn less than their peers, or why they are forced to pay out of pocket for medical expenses due to a workplace accident. 

We are calling on all orders of government to partner with us and take steps towards eliminating construction industry tax fraud. These steps include:  

• Increasing transparency in the procurement process on all government-funded projects.
• Having Canada Revenue Agency assign an auditor to work with the UBC to help identify contractor tax fraud via reported leads on suspected tax or benefit cheating submitted to the CRA. 
• Introducing legislation to impose stronger general contractor liability for sub-contractor violations.

We are also continuing to develop relationships with law enforcement and the banking industry to build awareness and take action on this issue.

Among the most common ways fraudsters exploit workers is either by misclassifying them as independent contractors or, even more commonly, by paying them ‘off the books’ in cash. Misclassifying workers and paying them off the books to skirt tax obligations is fraud, and some contractors have developed elaborate schemes to lower their taxes or avoid paying them altogether.

When contractors classify workers as independent operators or subcontractors rather than employees, they can avoid making contributions to the Canada Pension Plan and Employment Insurance; moreover, independent contractors do not accrue vacation and overtime pay as employees do.

Employers that operate off the books or classify employees as independent contractors don’t have to pay public assistance premiums or vacation and overtime pay. These illegal practices place legitimate contractors at a competitive disadvantage. As a result, UBC signatory contractors could lose out when bidding on construction projects, meaning less work for UBC members. Moreover, the awarding of contracts to carry out projects to the lowest bidder rewards contractors for operating illegitimately. This creates a race-to-the-bottom effect by lowering area wage standards and creates a market where employers are less willing to provide wage and benefit increases during bargaining.

Conversely, when union contractors have high market shares and command skilled, productive workforces, the construction industry is buoyed, as illegitimate contractors are forced to respect industry standards to obtain and retain employees.

According to Statistics Canada, the underground economy accounted for $68.5 billion CAD in economic activity in 2021. In 2021, the residential construction industry accounted for 35.0% ($23.9 billion) of all underground economic activity, by far the largest contributor. (Source)

The loss of payroll-tax revenue due to undeclared income deprives publicly funded sectors such as infrastructure, health care, and education.

Employers and employees each pay Employment Insurance (EI) premiums, and employers and employees each make Canada Pension Plan (CPP) contributions. Thus, undeclared income deprives these public assistance agencies. (EI source. CPP source).

Tax fraud in construction makes jobsites less safe because contractors that either operate off the books or classify their employees as independent contractors can avoid paying appropriate Workers Compensation premiums.