Paying Cash for a Home Renovation Project? Make Sure You’re Doing it Right!
There are a few ways you can finance a home renovation. You can work out a payment arrangement with the contractor, you can refinance your home or take out a home equity loan and pay it all off at once, or put it all on a credit card – again, paying it off slowly over time or, all at once. You can also just save up a whack of cash for the project, and hand it over to the contractor – in small amounts, or a lump sum. Any of these are perfectly appropriate ways to pay for a home reno project. If the work is properly documented, you are invoiced - and taxed.
It’s this latter part of the process that many Canadians are now finding trouble with, and therefore finding ways around it. In 2010 when the HST went into effect in Ontario, now combining our federal and provincial taxes into one tax system. There was a great deal of debate in Ontario when the HST was first implemented, and the main argument pointed to the fact that in the end, it would be consumers who would pay the price. This is still a belief that many hold to today, and so they try to avoid the tax altogether, especially for big-ticket items such as home renovations.
How it works is very simple actually. The project is completed, cash is handed over for labour and materials, and the homeowner walks away with maybe hundreds of dollars more in their pocket than they would have if they had only paid the taxes they were responsible for. And while it might seem like a win-win situation for everyone, really the only person who benefits is the one that’s breaking the law. That’s the homeowner.
Make no mistake about it, paying under the table all in order to avoid paying taxes of any kind is illegal. And while homeowners may not realize it, it’s a practice that hurts everyone.
Of course, not paying taxes hurts the country. Taxes are what the federal government relies on to pay down the deficit and the national debt, and when contributions are illegally taken away from that pool, it does indeed hurt the nation as a whole. Especially when many consumers and homeowners are doing it all at once, which is exactly what many of the industry contractors have indicated is happening.
But it’s also those contractors that are hurt in the process. Yes, they still make their profit because the homeowner is still paying for material and labour.
Many contractors don’t want to be dishonest, yet they have requests for bids from clients that specifically state it will be a cash-only, no-tax deal. With the industry being split about 50/50 when it comes to whether or not to make a bid on these deals, it’s hard to compete with those that will. Often these requests are padded slightly for the contractor’s sake, making them more appealing. It’s not enough to cover the HST though, and so contractors that want to take the job, but do so in an honest manner, often end up paying for the HST out of their own pocket when they submit their own tax and revenue documents to Revenue Canada.
Homeowners should never ask their contractor to allow them to pay under the table in order to avoid the HST. Not only does it put the contractor in an awkward spot, but it’s also simply dishonest. And when homeowners are looking for a contractor, honesty is one of the biggest things they must look for. Starting it off on the wrong foot by asking to pay under the table is just asking for a home reno disaster before it’s even begun.