Paying with Cash, and Dealing with Fraud Businesses


"Would you like to pay in cash? We’ll give you a 15% discount.” —We’ve all heard it before, but do you know when paying cash is legal, and when it is illegal?

A business that prefers cash isn’t always a fraud business. But, there is a tendency for cash payments to be "off the books". It’s much easier to hide cash flow under the table in comparison to other payments such as credit or cheque. Cash doesn’t leave a paper trail like cheques and card transactions do. It’s more difficult for the government to track undocumented cash flow.

Have you hired a fraud contractor before? Let your community know by writing a review about them.

Businesses that operate in cash and fail to properly document transactions directly contribute to the Underground Economy. March is Fraud Prevention Month, making it the perfect time to discuss the "cash only" contractor we’ve all heard about. So, how do you know when you are working with an honest business who prefers cash, or a plain fraudster?

Check out the appropriate steps to take if you’re ever asked the million-dollar question: “cash, or credit?”

Did you know that fraud businesses operate in all kinds of ways? Find out what 4 of them are here.


Cash and the Underground Economy

A lot of factors contribute to the Underground Economy (UE). Any Business that gives out a special "15% discount" is directly contributing to the UE. These businesses harm Canadians collectively. They also create an unfair economic advantage by raking in illegal earnings. Companies participate in the UE when they:

  • Evade their taxes due to Revenue Canada
  • Under-report their incomes by not properly documenting incoming cash, or “skim” income from their business
  • Fail to report employees to the government, and provincial Workers’ Compensation Boards (WCB)
  • Fail to register their business with the government

These Illegal activities damage Canadian social programs, businesses, and citizens. Illegitimate businesses can pay their workers under the table, and thereby hire undocumented workers. This allows employers to evade mandatory Workers Compensation Insurance (WCI) premiums that keep their workers safe. It also allows employers to forgo mandatory payments to the Canada Pension Plan on behalf of their workers.

Overall, these businesses end up keeping more money as revenue than legitimate businesses do. They benefit from social programs that they don’t pay for, and they don't provide their employees with secure health and safety coverage.

The Canadian Revenue Agency (CRA) can spot illegal businesses when their payroll doesn’t meet their bank account history. The CRA partners with other government agencies to monitor suspicious individuals.

If you are aware of fraudulent businesses, get in contact with the CRA here.

People participating in illegal activities can be fined, charged for restitution, and criminally charged.

Why Businesses Operate 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.

Some illegitimate reasons for dealing in cash include:

  • Having undocumented workers. Businesses do not want to pay insurance premiums for these workers, so they pay them under the table.
  • Owning an unregistered or unlicensed business.
  • Pocketing tax money by failing to have a registered tax number.
  • Scamming homeowners for deposits.
  • Attracting business based on low tax-free prices.

7 Ways you can tell when a cash contractor is fraudulent

1. Double check for immediate warning signs.

Immediate warning signs include:

  • The contractor demands cash only payments
  • The contractor demands cheque payments be made out to them personally

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. Hiring these contractors further exploits the UE, which instigates an economic burden on Canadians. It also harms honest businesses by funding their illegal competition.


3. Look for a contract.

You must have a written contract outlining everything from payments to materials. This is true for all types of payment methods. A contract that stipulates the cost of the project will help you in the future. It will act as a reference tool in case the contractor alters the price beyond your knowledge.

A contract can work as a binding promise that you can leverage in a legal scenario. Moreover, it will be one of few resources that will help you document an otherwise paperless business transaction if you choose to pay in cash.

Avoid any deal based on a handshake alone as it leaves rules and details vague and easy to change.Contractors who try and avoid written contracts are usually shady businesspeople, and you ought to avoid them.

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. Your provincial 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.

The company’s WCI standing with the WCB displays if the company is declaring its employees and payroll. If the company’s workers are insured, it probably means that the company is declaring its workers to the government. If they are not, they may be hiring workers under the table. This is fraudulent activity.

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.

Alexandre Ananiev from Wellcore Corporation, one of TrustedPros’ top rated Pros, explained the value of a receipt on our Ask the Pros Forum.

Alex says that a “receipt should have the company’s HST/GST number. Once there is a number registered to the company name, the receipt is an official document, and the contractor is obligated to report the renovation on their annual income statement for their tax collection.” Whenever you receive a receipt from a company, check to see if they have provided you with a tax number. If there is no number, you can be sure that the company is fraudulent.

Alex explains why these companies are not the best option for your next project. He says,

“when a contractor is not charging the customer HST, they are not eligible for HST rebates either. Yet, when they buy materials, they are automatically paying HST to a supplier. All these amounts go directly against their income. Companies that usually try and skim HST are ‘one-day’ companies that disappear in a year or so, making any of their obligations to homeowners completely useless.”

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. Both invoices and receipts can help you find out if this is happening.

Emilie Bucur from Groupe Pigmentum, another top rated Pro, explains the value of an invoice on the forum. Emilie says,

“there are certain pieces of information that have to be on invoices…The invoice must include: the contractor business name and address; the date of the invoice; the Contractor Business Number (also known as the GST Registration Number); the purchaser's name; a brief description of the goods or services performed; the total amount paid or payable; and the terms of payment”.

An invoice has a great deal of information about the company you hired, which will help you keep track of them in the future. Moreover, you can check if they operate legally by following up on their GST/HST numbers.

Alex suggests you visit the CRA website and search the company’s tax numbers. He recommends that if the number is not in the CRA system, and they have charged you HST, do not pay it. The company is probably trying to pocket extra cash illegally. We recommend you report this fraudulent activity to the CRA.

Emilie takes a different approach. Emilie says, “if the contractor is claiming the tax when they charge you taxes, they will have to declare them or [they] might get in trouble sooner or later.”

If you have not received any receipts or invoices, or the company cannot provide you with a valid GST/HST number, you may be dealing with an illegal business participating in fraudulent activity. You should report the company to CRA.


Avoid a Scam. Avoid Fraudsters.

  1. Don’t engage with any company who asks for a cash deposit for a quote that’s too good to be true—it probably is.
  2. Don’t engage with any company that doesn’t provide you with a written contract, or tries to avoid one.
  3. Stipulate payment processes clearly in the contract. Make sure to include receipts and invoices as a mandatory procedure in the contract.
  4. Avoid any company that pressures you to pay a huge up-front deposit or payment installment.
  5. Don’t pay a deposit for the company until you understand their history well.
  6. Check the company's reviews on TrustedPros.
  7. If you find that the company does not have any reviews, ask them for 5 references, and ask those references for completion photos. Try to visit the properties, and ask them for a review of how the company performed. Ask for specific information regarding the details of their project.
  8. Get the company’s Business Registration Number, and check it online.
  9. Get the company's WCI number and check it with your provincial WCB.
  10. 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.
  11. Check the company’s HST number on the CRA website. If they don’t have one, stay away from their business.
  12. Check with your municipality to see if any complaints have been made against the company in the past.
  13. If the company 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.

Posted by: Nicole Silver
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