I have a client who paid contractors to fix his house in cash and cannot find the receipt. Can we still claim it, I know CRA won’t accept it if audited..
But how can prove the cash payment to fix a house has incurred without having the receipt?
I think you have answered your own question. Usually a cash arrangement = no paper trail & no proof so it could be claimed as long as the client understands it would be denied upon review.
I once had such a situation and the client created an invoice for submission to CRA! He was dead set on claiming the expenditure so I sent it in with a disclaimer/note and then terminated the client. Wish I knew what came out of that review…
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It’s very difficult to prove an expenditure if you don’t have a receipt. However, even CRA will acknowledge (though they’re not up-front about it) that sometimes you will not have a receipt. After all, there is no way for you to compel someone to give you a receipt. In such a case, if the payment was in cash a bank statement showing the cash withdrawal on the approrpriate date could help. But it is still unlikely to be accepted on audit. It’s an uphill battle to say the least.
Agreed - the only time cash expenses have been accepted as “reasonable” in the circumstances for me have been when they’ve been small and “likely”.
Except for one time I repped a guy who’d been busted by the cops for a very illegal activity (he was an acquaintance and I was intrigued), and CRA and I got together to determine an income statement “by agreement” essentially. That was a long time back now. 
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Thank you guys, so it is not illegal if I claim cash payment without a receipt and I won’t be scolded or penalized for that right?
I know it is up to CRA to approve it or not. But Contractors sometimes won’t accept working on your project if it is not cash payment and no receipt, I had those scenarios before.
Has the house owner considered to obtain invoices, especially for larger expenses? I had a similar case a few years ago and the owner was able to get some retro-invoices.
Above that $ amount is considered large expenses that needs receipt for cash payment by CRA?
Is this your client’s principal residence? If so, the home office maintenance & repair expenses are normally for minor repair costs. It sounds like hiring contractors may involve more substantial repairs than CRA contemplates for home office expenses.
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I too, was wondering why they were claiming major repair costs to a principal residence.
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… cannot find the receipt.
Why not request a duplicate receipt, assuming the client has a legit claim.
It’s not “illegal”.
No. But you may, if the expense is claimed, then reviewed and appears unfounded (to CRA) and is otherwise unproven, be subject to a Sec 163(2) penalty (Gross Negligence).
It’s up to you to determine the applicability of that.
Contractors taking cash and not reporting same as income IS illegal (tax evasion).
Choose wisely.
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This is why we see tradesmen with huge homes, a cottage on the lake, a restored Duesenburg in the garage, and driving a Ford V10 crew cab.
I knew a municipal councillor who was quite proud that she built her entire house by paying cash.
But, if material is stolen from the job site, no one has that insured. If a worker falls off your roof or electrocutes himself on site, no one has Workers Compensation or liability insurance for that. Suppose a plumber inadvertently sets your house on fire, and it burns down. Again, a plumber working for cash doesn’t carry insurance. Your homeowners insurance will definitely NOT cover this. So, the homeowner gets sued and loses everything. So, paying cash is just peachy if you know for certain that no catastrophe will occur and you know you’ll never have to call back the contractor to fix faulty work. Yup. Just great.
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A perfect response.
Let’s be fair here. One reason tradesmen tend to have big houses and cottages is because they can do a large part of the planning and labour themselves, saving thousands or tens of thousands of dollars in costs.
Another reason is that the trades can be a very lucrutive business. You can make a lot of money in the trades, with everything being above-board.
If you see a tradesman with a big house and you assume they’re engaging in tax evasion, ask yourself why you’ve made that assumption.
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Another great response
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Never make assumption, but also never justify yourself. When you are trying to justify for your client, that’s an indication that you are concerned something is wrong. Asked the right question, and protect yourself from potential liability
I’ve been lucky, I guess. Haven’t had to lecture a client in some years now. For anyone in business, the temptation is always there to commit fraud. If you run a convenience store, you get groceries for free. If you’re a contractor, the sky’s the limit. You order materials for yourself and tell the supplier to tag the invoice for job zzz, a legitimate project you’re working on at the time. If there’s a delivery slip that shows a different address than on the invoice, destroy the delivery slip. And, if it’s a cost plus job, you’ve hit the jackpot. Not only have you got the materials for free, your business gets to collect it from your client, plus your standard markup. Do the same with labour. Have your crew work on your personal project 2 days a week and charge the whole week to your client. Doesn’t take long to amass a lot of capital. I’ve seen well-established national contractors charge the cost of a new office to one of their jobs. Small contractors may start out doing everything according to Hoyle, but, then they see how others operate. Or, they may feel they were treated badly in an HST audit. Sometimes, CRA have turned an otherwise honest individual into a complete crook. It happens. I like to think all my clients are as pure as the driven snow. But, we all know better. We’re not meant to be auditing our clients. But, if I happen to see an annual fee to a country club charged to materials expense by a contractor, I’ll back it out and read him the riot act. They either stop, or figure out a way around me.
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Well said, in this case, even if the client was able to provide a receipt, we have to have the competence to assess it. be skeptical
- unless you have ident of the individual and proof of payment, it does not exist for any claim, and no bank withdrawals are not substantive.
- What claim were they looking to make?
Home renovation to accommodate a disability? A rental property? Business/employment use of home? - was the expense capital in nature or repair/maintenance? Many get this wrong.