By our guest blogger Nicole Silver

Not all ‘cash only’ businesses are fraud. However, it’s difficult to keep good records of cash transactions, which makes it easy for transactions to slip under the table accidentally—or on purpose. It’s much easier to hide cash under the table because it doesn’t leave a paper trail like cheque and credit transactions do. The Canadian Revenue Agency (CRA) can follow paper trails to detect tax evasion more easily. Businesses that fail to document transactions or pay their taxes directly contribute to the Underground Economy, no matter how small the transaction is. The issues that consumers face is knowing when a new contractor who prefers cash is honest, or a plain fraudster.

Legitimate reasons to do business in cash

You need not avoid cash businesses. There are legitimate reasons to do business in cash, including:

• Credit fees: Small businesses lose money by paying for credit card services on site. Business owners can save up to 2.5% on each cash transaction. Credit fees can make revenue margins tight.
• Credit scores: Some people may not qualify to get a credit card, and operating in cash might be their only available avenue for business.
• Business convenience: Some people prefer to keep their money at hand, rather than loaning money to pay for products.

Seven ways you can tell when a cash contractor is fraudulent

1. Double check for immediate warning signs

   Pushy contractors who demand for cash or for cheques to be made out to them personally (not their business name) are the first red flag.

2. Any “special discounts” are a red flag

   Contractors who offer “tax-free services” are definitely evading tax laws in one way or another. Don’t take this contractor’s work. Even though you could save some money, it’s not worth it for a number of reasons. When you agree to this transaction you will directly contribute to the UE and place an economic burden on Canadians. You will also be harming honest businesses by supporting illegal competition.

3. Look for a contract

   Contractors who try and avoid written contracts do so to reduce the paper trail that their illegal operation leaves behind. Not signing a contract is bad news for every homeowner. Contracts must outline everything from dates, to payments, to materials. A contract will act as a reference tool in case the contractor alters the price beyond your knowledge. It may also help in legal scenarios.

4. Look for an insurance clause within the contract

   WCI coverage and the business’ WCB registration number are important to know. You are entitled to this information. Check this number with the provincial WCB. Yourprovincial WCB can tell you if the company is operating legally. The WCB will also tell you if the company has defaulted on their insurance premiums. Remember: unregistered companies are illegal, and reporting them will help the government halt their illegal operation. While a business may be insured and registered with the government, this is no fool-proof indication that they do not skim undocumented income off of their business. 

5. Ask the company owner

   Ask the owner why they choose to use cash, or why a cheque must be made out to an individual. They might provide you with a legitimate reason. Sometimes contractors working out of province ask their clients for personal cheques. They may not have access to their business account to verify if a cheque will bounce or not. Once the contractor provides you with a legitimate, official receipt or invoice, what they do with the money is their responsibility.

6. Demand a receipt for every transaction you make

   Receipts are very important. They document paid services. This helps create a paper trail to keep track of completed work, which is important in the case of legal issues. Receipts are also important because they are a testament to a company’s legitimacy.

7. Make sure you get an invoice

   If something seems fishy on the invoice, you can easily look into it before you make any payments. Consumers have addressed concerns about contractors pocketing tax fees. You can check the company’s HST/GST tax number through your provincial government online. An invalid tax number is a tell-tale sign of a fraud business that you can report to the CRA.

Avoid scams and fraudsters

Never engage with any company whose quote seems too good to be true, because it probably is. If they demand a large up-front cash deposit for this quote walk away! As a consumer, you should never pay a deposit for the company until you understand their history well. Make sure that the company offers a written contract that stipules a payment schedule on it. A receipt or invoice clause should be a feature within the contract.

Find a website that can help you learn about a contractor’s work history, like TrustedPros.ca. Reading about what clients have said about the contractor might give you some into their practices. If a contractor has no online review ask them for 5 references. Try to visit the properties, and ask them for a review of how the company performed. Ask about specific information regarding the details of their project.

Avoid being scammed by asking the company’s Business Registration Number, and check it online. Consumers should also obtain the company’s WCI number and check it with the provincial WCB. Try to stay away from a company that does not have its employees registered under WCI (unless it is legally acceptable). They are probably not paying mandatory premiums. You may be liable for a workplace injury and any additional unpaid premiums. Check the company’s HST number on the CRA website and check with municipality to see if any complaints have been made against the company in the past.

Finally, if the contractor asks for cash, suggest paying some installments in cash, and others through cheque, for example. This will decrease a company’s ability to pocket money under the table. 

Read more articles by Nicole here at Trustedpros.ca.

Canadian Fraud News Inc.