Underground economy emerges in Ontario

With less than a month to go before the 13 per cent harmonized sales tax is introduced in Ontario, there are signs that consumers are turning to cash-only transactions to beat the tax.

"We have about 20 estimators out here in the field and we're getting various reports of contractors whom are offering cash deals and this sort of thing in an effort to drum up business and to offer some sort of appeal to avoid paying the taxes," roofing contractor Craig Bennett told CBC News.

He said the situation is so serious in his industry thatit's causing a crash in prices.

"We see pricing out in the marketplace reflecting below-average pricing, I'll put it that way."

'There are going to be risks if you decide to pay cash.' Scott Blodgett, Ministry of Revenue spokesman

Ontario's Ministry of Revenue is aware of the growing problem and is countering it with a chilling message to consumers.

"There are going to be risks if you decide to pay cash," ministry spokesman Scott Blodgett said in an interview with CBC News, "No warranty, no recourse for poor services or workmanship and the biggest one the added risk of liability if an injury takes place on your property."

Blodgett suggests Ontario businesses have little incentive to operate under the table, because they'll benefit from input tax credits for purchases.

"In moving the HST, businesses also will only have to deal with one set of forms, and we figure they will save over $500 million a year in administrative and compliance costs," he said.

Bennett said consumers who want to avoid paying an additional 8 per cent on some goods and services are driving the underground economy.

"There may be a temptation out there among some people to save that percentage of tax by making an alternate arrangement with a contractor is going to be to their benefit in terms of saving money but I think in the long-run it's not going to play out very well for the consumers."

Blodgett says the emerging underground economy is a serious problem.

"We certainly know, the underground economy, it definitely hurts all Ontarians, and unpaid taxes definitely means less money for provincial programs such as health care and education."

The HST is set to begin in Ontario and British Columbia on July 1.