Home renovations and the underground economy in Greater Vancouver | www.rebgv.org

The problem with cash-only home repairs and renovations

A home owner looking to save paying taxes by hiring “under the table” contractors open themselves up to significant risks. These include:

1 Lack of written contract: Getting a written contract with a cash-only renovator will likely be difficult. Without a contract, a home owner has no warranty protection if repairs or renovations are incorrectly done and if work done damages the existing home.

2 Non-compliance with codes and bylaws: Repairs and renovations may not comply with the BC Building Code (including the Fire Code and the Electrical Code) and local zoning bylaws. The local government could issue a Stop Work Order and require repairs or renovations to be redone to code or removed.

3 Invalidating insurance policies: The home owner’s insurance policy may not cover damage caused by cash-only contractors.

 Lack of insurance for workers: Cash-only renovators typically don’t have proper insurance for workers, including Workers Compensation. If a worker gets injured, the home owner may be liable for medical and rehabilitation costs.

5 Canada Revenue Agency (CRA) litigation: Tax evasion is illegal and while CRA typically assesses the supplier of services for non-payment of the HST, if there is a court case, the home owner could be involved in a lengthy and costly process; the renovator could face criminal convictions, jail time and fines, and must also pay taxes owed, interest and penalties imposed under the Income Tax Act and Excise Tax Act.

6 Supplier litigation: Under section 4 of the BC Builders Lien Act, a home owner is required to withhold 10% of the total amount of the value of the work or the payment in case the renovator doesn’t pay suppliers, sub-contractors and workers who then place a lien on the property. In cash-only transactions the home owner doesn’t have this protection.

The underground economy hurts us all

Cash-only contractors not charging the GST can appear to have an unfair business advantage since anyone buying their services saves 5 per cent.

But working underground is harmful to other taxpayers. When contractors don’t pay their fair share of taxes there are less tax dollars to fund important services such as health and senior’s care and employment insurance, and important programs such as GST rebates.

If you come across tax evaders, you can report them to the Canada Revenue Agency Informant Leads Program at 1.866.846.3535 (toll free). The CRA publicizes criminal convictions on its website at www.cra-arc.gc.ca/nwsrm/cnvctns

Resources for home owners planning repairs or renovations

A Get it in Writing website at www.hiringacontractor.com explains the benefits of hiring a reputable contractor and getting a written contract and receipts. The website is co-sponsored by the Canadian Home Builders’ Association and Canada Mortgage and Housing Corporation (CMHC).

CMHC provides information on how to hire a contractor and a sample renovation contract at www.cmhc-schl.gc.ca. Enter “sample renovation contract” and “renovating a home” in the search box.

GST New Housing Rebate includes renovations

A home owner who substantially renovates more than 90 per cent of their home is eligible for a GST New Housing Rebate as though their home was a newly constructed residence. At least 90 per cent of the building that existed before the renovation began must be renovated.

The purpose price of the home must be $350,000 or less and the rebate is equal to 36 per cent of the GST to a maximum rebate of $6,300. There is a proportional GST rebate for new homes costing between $350,000 and $450,000. At $450,000 and above the rebate is nil.

For information contact, Canada Revenue Agency www.cra.gc.ca  Enter ‘RC4028’ in the search box or call 1.800.959.8287.

Did you know?

The underground economy for residential renovations is worth $552 million in lost tax revenue.

Source: Canadian Home Builders’ Association of BC, Real Estate Board of Greater Vancouver