Steve Payne October 4, 2012

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

Canadian Contractor

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.

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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