By Peter Carter
Is an all-cash deal really a deal? At first blush it’s a bargain, but when things go wrong and you don’t have proof of payment, that’s no deal.
I like motorcycles. My wife, Helena, always enjoyed riding on the back of my bikes. So a few years ago, on one of our anniversaries, I discovered what I thought was the perfect gift — an electric scooter. A little store not far from where we live had a shiny scooter in stock. The price tag? $200.
But the shopkeeper offered me a deal: if I paid cash and didn’t need a receipt, the scooter would be mine for $150.
I’m partial to that type of business deal — minimal paperwork, lots of handshakes. Last week we had our vacuum cleaner repaired. With a mellifluous accent, the clerk behind the counter said, “$60. Flat.” There’s a certain honesty to that deal. It’s the way I like to roll.
Back to the anniversary bike. I brought the scooter home and to my surprise, Helena told me there was no way she would ride it. I might as well march it back to the store. As I headed over, I sensed this was not going to end well.
I was right. The shopkeeper looked at me as though he had never laid eyes on me and said I couldn’t get my money back. I didn’t have any proof that he sold it to me, and, he added, he had a no-refunds policy. And that was that. I walked home, empty-handed.
Not long afterwards, the store closed. Which is probably typical of many such operations. But they don’t go without taking a toll.
According to Statistics Canada, business deals that don’t necessarily involve, say, taxes or receipts rob the Canadian government of about $45.6 billion a year, which accounts for about 2.4% of our GDP.
And while buying a scooter with no paperwork or paying $60 flat for a fixed vacuum is not illegal, I certainly wasn’t being a model citizen, no matter how simple it seemed. When a customer agrees to an all-cash, no-paperwork deal, the seller hears a loud-and-clear message: “I don’t care if you claim this on your taxes and I’m good with that because I probably don’t report every little thing on my tax return either.” In 2014, the former minister of national revenue Kerry-Lynne Findlay put it this way: “The very existence of the underground economy flies in the face of core Canadian values of fairness, honesty and integrity. If left unchallenged, the underground economy will erode the integrity of Canada’s tax system.”
But never mind the big picture. Dealing in the underground economy can hurt. I had misjudged Helena’s tastes and lost $150, which was merely salt in the wound. Every time we stroll past the former store’s location, I am reminded of the dangers — financial, emotional and marital — of conducting business in the underground economy.
Antonio, a professional in Ontario who would prefer not to use his real name, was promised by a roofer that his repair job would last at least five years.
Two years in, Antonio noticed some leakage. When he contacted the roofer, the man came by, checked the roof, pronounced that the work appeared OK to him and walked away. “And no,” Antonio recalls, “we didn’t have a guarantee in writing.” Luckily, Antonio found someone to repair the leak. This all happened more than 10 years ago, and Antonio forgets the total amount it cost, but he does remember that the roof was the final piece in a very long $200,000 renovation job that entailed one missed deadline after another.
“I know,” Antonio says, “I’m supposed to get everything in writing, down to the date that the last floorboard will be nailed in, but I’m not very good at that.
“I know those contractors have a lot of other projects that they have to tend to, but I always feel we’re being taken advantage of. I sometimes get the sense that when certain contractors see that I’m a [professional], they add a few percentage points to the price.”
Me too. I sometimes wonder if I don’t have “mark” tattooed across my forehead in ink that’s only visible to some people. Helena and I once had a used Mazda that we wanted to sell and instead of trading it in at the dealer where we purchased its replacement — our first minivan — we stuck to the handshake-lined path of least resistance. An acquaintance was getting into the used-car business and told us he could get a better price than we could get from the dealer.
Two days after we signed it over to him, he called to say he couldn’t sell the car because it had been stolen off his property. The police came and took a statement and, just as with the scooter deal, that was that.
As my wife says, “People who don’t take care of things like paperwork aren’t always burned, but they’re singed.” And while statistics show that billions are spent in the underground economy every year, finding people who will admit to being burned is difficult. No one wants to admit he or she took an almost-illegal shortcut and lost on the deal.
But the people who have to clean up after the shenanigans can tell you all about deals that have gone bad.
Nicole Silver is in charge of public relations and digital marketing for TrustedPros Inc., a platform that helps homeowners find reputable contractors based on client reviews and a score from a rating system.
In an article she posted on the TrustedPros website, Silver writes about one contractor’s experience: “I received a phone call last week from a customer who had a bad experience with the contractor whom they had hired. It was obvious that the contractor was just grabbing money from this customer. Most of what was done needed to be taken out. Granite countertops were installed before the plumbing, electrical and gas [works] were completed. Cabinets were built from reused cabinets from previous jobs. The customer will need to have most of the kitchen taken apart because nothing was done properly.”
The customer had paid the contractor more than 75% of the project and would need to pay more to get the work completed. “I asked the customer how much he had paid so far and he told me that the contractor charged $20,000 and most of it was paid off. I rapidly estimated the project at a base price of $45,000. That means this contractor lowballed the project simply to get the job and completely scammed these people.”
While TrustedPros encourages the public to engage reputable suppliers, honest small businesses can get hurt, too.
Take Andy (not his real name), a veteran housepainter who has been eking out a living for the past 40 years. He eschews paperwork yet says that the Canada Revenue Agency always gets its fair share.
“What’s the worst thing about running a business this way?” he asks. “You frequently don’t get paid. That’s the worst thing.”
Andy is often asked why he doesn’t get customers to sign a contract. “Contract or no contract,” he says, “if a person isn’t going to pay you, they’re not going to pay you.”
For one job, he was paid part of the money, but was still owed $300. When he asked the client for the remainder, her response was that she had paid it in cash.
“Except she hadn’t,” says Andy. “There’s me saying, ‘No, you didn’t’ and this lady standing in her doorway with her practiced ability to beat up guys like me. Who has the articulate ability to go to small claims court?”
Recently, Helena and I paid a professional window-covering installer cash, $75, and I didn’t ask for nor did I get a receipt. Given how lax I am about paperwork, I suppose if I were a small business owner, my enterprise might be like Andy’s. I have no idea what I’m going to do if and when the window coverings fail.
Joyce Reynolds, executive vice-president of government affairs for Restaurants Canada, sits on the CRA’s underground economy advisory committee. When she was asked what role a person like me could play in fighting the underground economy, one of the simple suggestions she provided was very concise: “Ask for a receipt.”
I promised her I would try.
This article was originally published in the December 2016 edition of CPA Magazine.