Underground Economy

Legitimate contractors pay price of Ontario’s underground economy

By Lindsey Cole

Joe Vaccaro, chief executive officer of the Ontario Home Builders’ Association (OHBA), puts his views on the underground economy bluntly: Consumers take part in under-the-table transactions because they want a discount, plain and simple.

 “They’re looking to save the tax. It’s a combination of a willing person and a willing contractor,” he says.

But what they don’t realize is the risk they are taking with those transactions, the overall cost to the economy and the impact it has on legitimate contractors, he adds.

“They’re disadvantaged. It’s not a level playing field,” Vaccaro explains of those operating legally. “They’re competing against someone who can knock 15 per cent off the price, but isn’t paying their fair share.”

In January, the province announced it is seeking input to address the underground economy with parliamentary assistant Laura Albanese consulting with key stakeholders, including the OHBA, to better understand the scope of the underground economy within the residential sector.

Ontario’s underground economy accounts for $15 billion in lost economic activity each year, the province highlights. According to Statistics Canada, the residential construction sector comprises almost 30 per cent of Ontario’s underground economy, or around $4.5 billion in annual underground economic activity.

Sean Strickland, the chief executive officer for the Ontario Construction Secretariat (OCS), says a follow-up to a 2010 report is in the works to see if progress is being made.

“We are going to be updating that report this year, so the timing of the government consultations for us is quite good, in the sense that we’ll be able to have more information to inform the discussion,” he says.

“We’re happy to participate, as I’m sure all construction industry stakeholders are, because the underground economy is a real challenge to our industry and it also undermines competitiveness and legitimacy of contractors who are playing within the rules.”

He says two key recommendations from the 2010 report included increased enforcement from the Canada Revenue Agency and mandatory coverage by the Workplace Safety and Insurance Board (WSIB).

According to the province, through enhanced auditing the government has generated more than $825 million in increased revenue for the province since 2013–14.

“Those are significant numbers in terms of combating the underground economy,” he says. “We think that the problem has diminished in the ICI (industrial, commercial and institutional) sector because of mandatory WSIB coverage. I think the government is really focusing now on the residential sector, which is a different kettle of fish.”

For Vaccaro, there are several ways to combat the underground economy on both the consumer and contractor sides.

“Get it in writing,” he says for consumers. “You’re ensuring from a contractual aspect, if things go wrong, you have a starting place for any action you may want to take as a consumer. There are hundreds of TV shows that are built on the basis of bad contractors.”

For contractors, get a business number.

“That business number at least is a starting point for government to track how businesses are operating and whether or not they’re operating in a legitimate fashion,” he explains.

Vaccaro says when doing renovations, a licensed builder is needed to do the work.

“We are running into a situation where individuals in the province have the right to pull their building permit and build their own home,” Vaccaro says. “The difficulty is we see more and more cases where a contractor is contracted to build that home, and the contractor says to the homeowner, ‘Instead of me pulling the permits, which requires me to be a registered builder, why don’t you pull the permits and you can save yourself 10 per cent on the permitting costs, on the registration costs?'”

For consumers, Vaccaro also states home insurance enables the power of protection and should be a given.

On the government side of the equation, the OHBA recommends a home renovation tax credit in order to give homeowners an incentive.

“This is something we’ve been calling on for the government for the last six years. HST is going to fundamentally change the way the renovation industry works,” he says. “It motivates consumers to ask the right questions.”

Strickland adds the likely outcome of the province’s consultations on the underground economy will be more regulation.

“A lot of folks aren’t too keen on more regulation for the construction industry,” he adds. “But when it comes to the underground economy I think if they get the regulation right, we’ll all benefit.”


Courtesy of OHBA