Canadian Contractor

One way to stop "cash only" clients in their tracks

Since governments demand that contractors collect their sales taxes for them, why don't they help us to collect them? Here's a proposal that would see them doing just that.

October 4, 2012
By Steve Payne
Steve Payne

by Steve Maxwell

Government can only bleed so much tax money from its citizens before people revolt and take matters into their own hands. The point at which revolt begins varies with the individuals involved, the amounts of money in question, and the circumstances at play. But make no mistake: When taxes rise high enough, revolt is inevitable. And the Canadian construction industry is one part of our economy where the “13 per cent revolt” is in full swing.  [Editor’s note: That’s the HST rate in Ontario, NB and NL, of course; sales taxes are 14.5 per cent in Quebec and 15 per cent in PEI, while slightly less in other provinces.]

In typically Canadian fashion, this revolt is quiet and low-key, though significant just the same. Depending on where you work in Canada, the revolt shows up more or less frequently, but in all cases it comes down to the same thing: Clients insist on paying cash, forcing contractors to go underground with their earnings or pay the 13 per cent HST out of their own pockets. The balance of power lies in favour of clients in this regard, simply because they can (and do) take their cash elsewhere if a contractor refuses to play loose with the law of the land.

Besides the obvious moral issue of living in a socialist country while also refusing to pay the socialist tax bill, the cash-only mentality hurts contractors in several ways. First, the government requires you to do the dirty work of collecting HST/GST, or pay it out of your own pocket. Don’t all businesses have to collect HST/GST? Yes, but contractors face a steeper challenge than most because our billings happen far from any cash register, accounting department or official inspector. Alternatively, you can refuse to play the role of either tax collector or tax provider, using the space underneath your mattress as a bank account instead, The trouble here is that you end up looking a whole lot poorer on paper as a result. Just try getting an operating loan when 50 per cent of your income isn’t official. Just try claiming input tax credits on income you’re not supposed to have earned.

None of this would matter if it the under-the-table work was just a small part of the construction economy, but it’s not. One tradesman I know calls the cash-only marketplace an epidemic. I’m inclined to agree. He wants to work honestly and that’s why he avoids cash deals whenever he can. Or at least he tries to. Trouble is, more than half the jobs he bids on these days are firmly laid out as cash-only gigs right from the start by clients – both large players and small. “If you want to work on this project, it’s cash only”, he hears way more often than he wants to.”  You either take the cash (not including the sales tax, of course) or some other tradesman with a savings account at the Mattress Bank of Canada gets the work.

The root of this growing problem ultimately comes from a government that’s addicted to taking a ton of our money, then spending it on us so we love them. There’s also the fact that more and more Canadians are growing more and more bold about the kind of routine dishonesty that has ruined good countries in other parts of the world. But regardless of the causes, as a contractor you’re caught in the middle. You’re expected to collect HST/GST without government help on the one hand, but you have less and less power to squeeze those taxes out of clients who couldn’t care less about doing the right thing on the other. It’s a problem all right, and there’s only one solution that I can see.

Since governments demand that contractors collect these sales taxes, isn’t it reasonable that they help us to collect them? The contracting business is more vulnerable to HST/GST evasion than any other legal part of the economy because of the size of the transactions and the way they occur. That’s why it’s necessary that steps be taken to make paying the HST/GST more than just an optional exercise for the unusually honest.

Government certainly knows about every legal building project in Canada, because every legal project begins with a building permit. The value of these finished projects is also fully known, too, because the figures are required for yet another branch of government to collect property taxes. So how about this: What would happen if it was mandatory that records of payments to contractors, in line with realistic building costs, be shown by clients for all construction costs before a final occupancy permit was issued? Wouldn’t that snuff out the cancer of the cash construction economy? Instead of putting the onus exclusively on the virtually-powerless contractor to collect and remit the HST/GST, also make verified payment of HST/GST the responsibility of the client, too. It’s certainly no substitute for an honest citizenry, but wouldn’t it make a big difference?

Renowned home improvement journalist Steve Maxwell is the tools editor of Canadian Contractor.




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22 Comments » for One way to stop "cash only" clients in their tracks
  1. Steve says:

    Your closing argument doesn’t solve the problem, if what you propose is enacted then the next article I would be reading is how 99.99% of all building projects don’t get building permits.

  2. I agree with your argument only in as much that it recognizes that the problem starts with the homeowner, and that there are those contractors out there who are willing to fill this market need. Your proposed solution again would only solve the issue as far as “honest” homeowners, those that get permits, and who would actually be tagged if they weren’t honest about how they paid for the work. History has proven that without adequate enforcement, there will always be those who work around the system, so a disincentive approach would not work.
    A better solution might be for the government to recognize that construction is a huge contributor to the economy, and that citizens love to get deals and will respond accordingly. If homeowners are made to pay permit fees and HST, but were offered incentives that offset most of the cost of this in the form of credits and rebates, then they would think twice about the need to pay cash and the underground economy would shrink. The offset of the additional administration costs to manage the rebates, and the loss of sales tax revenue would be the recapture of a large portion of the billions of dollars that are now going underground and the resulting in-flow of income tax dollars into the government coffers. This would be a win-win-win approach – the homeowner wins, the government wins, and at last, the honest contractor wins. This worked well with the Home Renovation Tax Credit, and only the government was unable to see the benefits due to their own waste and incompetence.

  3. Burke says:

    Sorry Steve but your solution to the problem won’t solve the problem. Most cash jobs are for smaller amounts that often a building permit is not taken for. Your proposal will force the underground a little deeper as more projects will end up not getting a building permit if this was the way that determined cash customers found to get around the HST.

    • Robert Koci says:

      I am afraid you are right. Although the enforcement of building permits are better than enforcement of HST payments.

  4. I’m a roofing contractor in BC, and yes it’s a huge problem here. I am constantly losing jobs because I am unwilling to do the work for cash. This trouble first started when the feds originally imposed the old GST, and it’s grown even worse since the addition of the HST (12%). In BC the provincial government recently voted to dissolve the HST as of April 1 2013 and go back to old GST (5%), this will help, but it’s not a cure.

    I think that value added taxes are a good thing, because they tax those that who afford to spend. But I don’t think that it’s good for the construction sector.

    In the past (and soon to be again) the PST was paid on the materials by us to the suppliers. Then it was passed on by us to the client in the form of an expense of the contract and not as a separate tax that we collect, so this always got paid.

    I think the feds and the provincial governments would be wise to eliminate this (HST or GST) value added tax on our contracting services and just keep charging it at the material supplier level, even if the percentage had to be increased to counter the revenue loss. At least this way all taxes get paid, the contractors don’t have an avenue (or reason) to accept cash on their projects, and it offers no advantage to a client hoping to get a “deal” for cash.

  5. Rob says:

    All the HST and GST did was employ thousands of govt workers!
    why don’t we go back to the manufacturers tax! It most always got paid!
    and we the people did not have to pay thousands of Govt. workers to chase and collect stupid taxes. taxes that made every company in Canada do all the paperwork for free! Even if the customer does not pay us, we still have to pay the tax and then claim it back later! This is all stupid. We pay far too much tax in this country and it gets wasted by all the unneccessary Govt workers with great pensions, of which most of the tax paying people and companies simply cannot afford!

    Our Goverments are for the Governments, they do not do what is in the peoples best interest!

    Once again, We the People lose!
    Lets create a new govt, one thats for the people, not for the govt!

  6. Steve Maxwell says:

    Hello Everyone,
    Thanks for all your input on my article about the cash economy. If this was an easy problem to solve, then a solution would be in place already. Dealing with the twin evils of government’s addiction to excessive taxation, plus a declining level of honesty in Canada isn’t simple. I don’t know if talking about this issue here will help anything, but it’s worth at least a little effort.
    Take care,

  7. Randy Penner says:

    Underground money works will always be a problem! What I can’t figure out is the customers want us contractors to be honest, yet they will gladly cheat the government. Makes me wonder – but here in SK at least we still deal with GST separately. With our government always messing up business I think a simple way to make life easier would be a flat tax rate of say three percent across the board – no GST credits – no refunds – everybody pays. It would be simpler, less chance for cheating, less cost for most everyone, and probably more money for the running of the country. Ah, but what would all those tax people do for a living?!!!

  8. Randy Corning says:

    Hi,I somewhat agree with Mr.Maxwells article on HST and contractors.In Nova Scotia as probabaly elsewhere we have to tell the CRA and Workers Comp who we have hired as sub contractors and show the value of their work on our projects.If we are late with this report we are fined by CRA .The gripe is they have a different deadline than Workers Comp.It also does not line up with our year end thus creating extra overhead.
    On the issue with HST maybe the Construction Industry should get a break. We get an input credit of 2% for doing our end of it and the customer gets 5% discount for showing permits and also for staying above board.It would be a win win and probably the CRA would get more in their pocket. They would not have to start spending millions to beat up on the wrong group of people.The whole thing needs to have a different approach to it. People ,Contractors and CRA have to be in the solution not just the CRA.

  9. Steve Payne says:

    Thanks for all your comments, everyone. Randy Penner’s “Customers want us contractors to be honest, but they will gladly cheat the government,” is priceless. I am wondering if anyone noticed that the Home Renovation Tax Credit from 3 years ago, in which customers had to REGISTER their projects, cut DOWN on the amount of cash deals you were all being offered?

  10. Robert Koci says:

    But the underground is fed not only by consumption taxes like the HST. it is fed also by Building permit fees, Workers Safety Insurance, Ministry of Labour oversight and the CRA. All of these add costs to renovation projects and fixing just one won’t deal with the other. Expecially, it is fed by consumers over taxed to begin with. I think consumers need to be allowed to chose between doing cash work or not. If they decide they want to have work done for cash, they sign a waiver, submit it to the city, and they are essentially on their own. Something happens, it’s their problem. They are open to litigation, and they disqualify themselves from any public help if something goes wrong. For some with little money but a desperate need for a new roof or other fix, it might be the only option.

  11. JIm says:

    Wouldn’t the best way to solve this be to bill for 13-15% more for cash only jobs then just pay it out yourself?

    • Steve Payne says:

      Jim, thanks for the idea. Gotta ask though, how, if a customer has a bunch of cash quotes way lower than yours, and you want to be in the same ballpark, is upping your price 13 to 15% going to help you win the job? Or will you just grab the job and cut your margin in half, or by two-thirds, or more? And the sales tax is only the beginning. Are you going to refrain from charging for your insurance, workers comp premiums, fees and the costs of time for acquiring permits, etc, etc, all the other costs of running a legit business. Arguably you are now up to 20%, 25%, 30% higher… What do others think that real number is?

  12. John Zeldin says:

    Thanks for the article Steve. This is really an easy fix. If you are a legitimate contractor with insurance, comp, etc. then you know or should know that if one of your men were to be injured on the job workers safety will show up and they will want proof or payroll, permit, comp compliance, etc. etc.

    They have access to all your government information. So if you’re working for cash, life as you know it now will come to an end. The average fine for a guy falling off a roof is around $100,000. And you will be held personaly liable.

    So, to all contractors – don’t do it. Just explain to the client the serious risks they are taking by hiring underground contractors. I never have a problem with clients wanting to pay cash. I just don’t do it.

  13. chris says:

    Same problem here and it has gotten more prevalent since the HST was introduced. I am only hoping every Province follows the lead of BC and puts an end to it.
    We gave a fair sized quote a few months back to a person who then turned around and, didn’t just ask (as many hesitantly do, then you can just say no) but demanded the job be cash. He didn’t just want to avoid the tax but also wanted “cash” to lower the quote. Just how high a tax bracket do these people thing a Elec Contractor is in, I WISH!!!! My husband was teetering. He didn’t want to do it but it wasn’t a little $3000 job, it was more like $10,000 and he didn’t want to lose work for the men, blah, blah. I gave him one of those wifely (you know I will never let you forget this, and you WILL be sleeping on the couch) looks. He hesitantly emailed the guy back, NO, you have my quote, I hope we will be able to work together.
    It’s not only about doing things dishonestly and selling yourself short and self respect etc, it’s also about how when these types talk you into a bad deal, just watch how REALLY BAD the job goes from there on!!!
    Yes, he got the job and the guy did continued to try and get a free light here and a free cable there, typical, but once you get into the whole mindset of “I can say NO and the sky doesn’t fall down on my head”, its surprising how much easier it gets!

  14. The solution is to start with the Clients/Consumer. Many of us refuse to work for cash or if we do refuse not to charge taxes because regardless of how we bill we remit our HST. What if it were the Clients responsibility to remit the HST immediately to the government upon retaining a contractor? What if it were the Clients responsibility to report what HST was charged on a particular contract? What if WE HAD A MECHANISM to report consumers who asked for the CASH ONLY / NO TAX deal?

    In addition to the current issues with the Ontario underground construction economy WSIB will soon be changing their rules. They believe the rule change will better the industry; however, I believe it will make it much worse. I believe that contractors who were on the fence about collecting cash and not remitting HST will increase 10 fold.

    Good Clients/Consumers respect the rules and recognize value – so do good Contractors.

  15. Adrian says:

    First of all people have to learn how to apply tax
    #1- do not double charge the customer tax. Meaning tax on the cost of material plus another 13% on the total of the job
    It’s just material plus tax plus tax on labour only
    #2 learn to buy wholesale, this way when you do as #3 no on see, you pay taxes, you get a loan, your a legit company.
    #3 learn to sell. My quotes already have 13% in it so if the customer wants to pay cash then so it be. The hst is already covered. If they want to pay cheque I tell them ill cover the taxes

    Yes ideally at the end of the day taxes are to high bla bla bla. Live with it deal with it, your a business owner think business

  16. GARY says:


    • Robert Koci says:

      Good point, but you didn’t have to YELL!!

    • Joe says:

      Did you not read the article correctly? The problem is not the contractors, it’s the home owners who refuse to pay hst and insist on paying cash to people. That is the problem with the industry. That is why so many contractors have to turn down work. Cash is no good to a contractor. You may as well take that money and burn it to keep you warm because unless you are paying hst and income tax…it is completely and totally worthless.

  17. Boom says:

    The root of the problem is that tax rates are too high. Full stop.

    Those willing to defy the government and avoid the tax are heroes, not criminals. If more Canadians would stand up and do the right thing (i.e. not pay the tax), we’d all be much better off.

  18. Joe says:

    As a contractor. The moment a customer utters the words”cash job” I should already be recording what they say, immediately report it to CRA and the home owner should be charged with conspiracy to commit tax evasion/fraud. End of story. No home owner would ever try to pay cash ever again.

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