Paying Cash To Avoid Reno Taxes Isn't Very Wise

August 25th 2010
Paying Cash To Avoid Reno Taxes Isn

Hands up if you enjoy paying taxes. Don't be shy, punch those hands high into the air.

OK, I can safely assume not many hands were raised. Certainly not enough to start a wave at a B.C. Lions game. And likely some of you held up only a middle finger to express your sentiments.

Consumers have no choice. They either grit their teeth and pay it, or they don't purchase the product or service.

However, there is one area where consumers do have a choice - home improvement.

Think about it, a flawed tax system is one that allows both the buyer and seller to conspire to avoid paying tax. If a contractor offers to do the job for cash (no paper trail), and the homeowner agrees, the deal is done - without the knowledge or influence of the taxman or other regulatory authorities.

Home renovation is big business. This year alone, homeowners in Metro Vancouver are expected to spend $3.5 billion sprucing up the old homestead, creating 31,000 jobs and generating $1.6 billion in wages. Many industry watchers, me included, believe more than 30 per cent of that is underground activity.

The next time you are in a bank on a Friday, watch the teller transactions. There are either large amounts of cash being deposited, or withdrawn. Often the cash being deposited is a tradesperson who has just been paid, or a contractor is withdrawing the cash to pay the trades on a job site.

Trying to save money is human nature, especially during these challenging economic times, but homeowners place themselves and their families at financial and emotional risk when they engage in verbal agreements with contractors, tradespeople and installers who offer to work for cash.

In the absence of applicable permits and inspections, WorkSafeB.C. compliance or liability insurance, homeowners can be held responsible for everything that occurs on their properties, including accidents. And if the renovation is botched, a homeowner has little legal recourse without a written contract that clearly defines the roles and responsibilities of both the homeowner and contractor.

At my age, I am not about to climb a shaky 20-foot ladder, so I called a company to clean our gutters and siding. The owner came over and gave us a reasonable estimate, including tax. So far, so good. I asked about WorkSafeB.C. compliance. Yes, he said. I told him I'd contact him in a day or so.

Meanwhile, I checked with WorkSafeB.C. and found out the guy was not covered. When I called him, he expressed surprise, said he would deal with it, then get back to me. Never heard from him again. He likely replaced our job with another, where the homeowner didn't bother to check such matters.

Ours was a small maintenance job, but it boggles my mind when homeowners pay thousands of dollars to a renovation contractor, much of it upfront, with nothing but a handshake to seal the deal.

Homeowners contemplating renovations should consider Reno- Mark, a national program that helps to differentiate the pros from the schmoes. Visit then click on the RenoMark logo.

While it lasted, the federal government's Home Renovation Tax Credit was popular with homeowners. Homeowners contemplating home improvements would welcome a permanent tax rebate of 2.5 per cent (equal to 50 per cent of the GST collected by the feds). The provincial government, too, should consider rebating a portion of the tax it collects on home improvement.

Requiring homeowners to submit receipts in order to qualify for tax rebates would encourage them to deal with legitimate, tax-remitting renovation contractors, and not fuel the underground economy.

The underground cash economy will never be totally eradicated, but considering the significant economic contribution by the legitimate renovation industry, and the need to safeguard the fairness-forall integrity of Canada's tax system, the federal and provincial governments should start making it easier for homeowners to say "no thanks" to cash deals.

Tax rebates would be an earnest start.