Tom Carroll operated a small construction business building new homes and renovating older ones. He had been in business for 20 years and had a good reputation for quality work completed on time. His company employed six workers year-round, but the number increased to about 20 between May and October when outside construction was viable. He operated his business “by the book” and attempted to be fair in dealings with employees and customers.
In addition, he made a point of dealing with the Canada Revenue Agency fairly and did not avoid or evade taxes. He believed that this was not the case with many of his competitors. Tom felt that some of his competitors were simply greedy. In chatting with them about evading taxes, they said that they were unlikely to get caught and customers did not care. Furthermore, they felt that it was necessary sometimes to survive and that entrepreneurs deserved the extra compensation for working hard and long hours. Although they believed that evading large amounts in taxes was a crime, evading small amounts was okay. There was a common feeling that small business pays too much tax, the government wastes money, and large businesses get more tax breaks than small businesses.
The two main areas where the contractors evaded paying taxes were paying workers off the books and hiding income. The downsides of paying off the books were the always-present chance of being caught, the inability to declare the labour costs as an expense, the liability in the event of worker injury, and the risk of worker disclosure. Income was more likely to be hidden when the business was struggling financially, the owner had close control of operations, the business’s objectives were short-term, and workers were paid off the books. Hiding income was facilitated by customers paying cash, sometimes in exchange for a lower price. Hearing all this got Tom to thinking.
There were certainly opportunities to evade taxes with slight chances of being caught. It was clear that his competitors were benefiting from the evasion practices while he paid all his taxes. He raised the issue with his spouse, who said he should not follow the same practice. Despite this, he started considering the possibility.
If Tom were to consult you, what advice would you give him and why? (300-500 words)
Explain using the material studied this week as well as previous weeks on ethics, CSR and business.
HELPFUL HINT: You may use Carroll and Bryson’s The Issues Management Process in the chapter notes to analyze this issue and come up with a solution. You can get creative with your answers but do your due diligence and research around the topic.
