# Reported income whose source can't be verified



## Gue$t (Sep 2, 2011)

Last year I reported $25,000 as "other income" on my tax return. Now I am being audited for this other income and am being asked to provide all sources of this income which is impossible. I can't provide a source for more than 10,000 of this income. What is the likely outcome of this audit if I am unable to provide the source of this "under the table" income I made. I have the money, I reported it, but now I can't prove the source cause it was under the table...


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## Maxpower (Oct 29, 2012)

Gue$t said:


> Last year I reported $25,000 as "other income" on my tax return. Now I am being audited for this other income and am being asked to provide all sources of this income which is impossible. I can't provide a source for more than 10,000 of this income. What is the likely outcome of this audit if I am unable to provide the source of this "under the table" income I made. I have the money, I reported it, but now I can't prove the source cause it was under the table...


 If your lifestyle matches up with the income you claimed on your taxes then you were not working "under the table" because you reported it and paid taxes on it. If that is the case you have not really done anything wrong though the person that employed you under the table might have been, that is if you were working by the hour for them and not as a contractor or subcontractor. If you were working for them by the hour then they are legally obliged to hold back and remit those taxes but there is no such obligation for contractors. One thing is the CRA cannot reasonably expect you to refuse a paying job because it is under the table, dependent on your situation that is, and the most they can really expect from the average person who is just trying to get by that ends up in that situation is to do exactly what you did, report the income and pay taxes on it. From the CRA's webpage on "The underground economy" it states:

"The underground economy typically involves commercial activity that is unreported for tax purposes."

If you reported it then you saved it from "the underground economy" and placed it in the "legitimate" economy by reporting it and paying taxes on it and as long as there are not any discrepancies between your lifestyle and your reported income, bank account deposits etc.. or very unusual and sudden fluctuations in your income over the years then there really shouldn't be any problems in that area. The tough spot might be you not wanting to name the person you worked for and if that is the case, because you were not a subcontractor which means setting your own hours, supplying tools or equipment of some kind and having some possibility of making a profit, and were instead working by the hour for them then that will be the hardest part to deal with and explain. If that is the case you might want to talk to a lawyer and find out what your options are and then decide a course of action.


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## stardancer (Apr 26, 2009)

CRA may be wanting to figure out the classification of this income. If it was other than employment then it is truly 'other'. If it was through employment, even tho under the table, then they will ding you for CPP premiums based on that amount and your tax return. Sometimes you can get away with 'casual labour' being classified as 'other' if it is a small amount ($1000 ish). But for a large amount, they want the CPP premiums.


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## Homerhomer (Oct 18, 2010)

stardancer said:


> CRA may be wanting to figure out the classification of this income. If it was other than employment then it is truly 'other'. If it was through employment, even tho under the table, then they will ding you for CPP premiums based on that amount and your tax return. Sometimes you can get away with 'casual labour' being classified as 'other' if it is a small amount ($1000 ish). But for a large amount, they want the CPP premiums.


+1
Never report any business activity under other income, this is audited all the time for the exact reason stardancer mentioned.
Indeed they most likely want a proof if this is truly other income as oppose to business income, if they were after amounts it would most likely be when you have expenses or credits, then you would need to document the deductions, for revenues the only documents would be produced by you (invoices) unless they are matching some of your clients with your revenues and it doesn't add up (ei subcontractor forms files by your customers and such).
If you had other pensionable income over 50k then there would be no impact on your cpp premiums, if not then you will be on the hook for the difference.


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## MoneyGal (Apr 24, 2009)

Sometimes CRA audits not because they are looking for tax avoidance (if you reported this as taxable income, you are not avoiding tax) but because they want to find the source of the income and audit THAT company. In this case, that would mean going to the businesses (?) which had generated the income that you reported. If you owe CPP contributions on this income (or you would if you had not otherwise already reached the maximum), they may well owe payroll taxes - that's what CRA will be after.


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## Robillard (Apr 11, 2009)

Is it too late for whoever paid you to provide retroactively a letter or record that attests to source and purpose of the payments you received?


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