If you pay cash, get a receipt: The best defence in tax court is to have proof in writing

National Post

2005-06-11



While cash may be still be king in some segments of our economy, the taxman
takes a dim view of cash transactions as evidenced by their latest pamphlet
snappily titled Do you take cash?

In it, the Canada Revenue Agency "reminds" Canadians cash payments are not
only subject to goods and services tax, but must be reported annually on your
income tax return, adding "failure to do so is tax evasion, which has serious
consequences."

The penalties for failure to report income or remit GST can be severe. Warns
the CRA: "If you are caught cheating, you could pay significant fines, lose your
assets, have your name published in the newspaper or on the Web [and/or)] ... go
to jail."

The home renovation sector was singled out as warranting special attention,
with the CRA's "Get it in Writing!" information and awareness campaign, which
encourages homeowners to get receipts. The CRA says in the past two years, its
enforcement actions in the construction sector resulted in nearly 25,000 audits,
in which $140-million of federal tax was assessed plus an additional $44-million
in interest and penalties.

Two cases decided in tax court last month highlight the problems associated
with cash transactions.

The first involved an Ontario taxpayer charged with failure to report more
than $70,000 of income in 1997 and 1998. The taxpayer argued the amounts in
question were winnings from gambling at Casino Rama and therefore were not
taxable.

Before rendering his decision, the judge allowed the taxpayer 30 days to
submit evidence from the casino to substantiate his winnings. After the taxpayer
failed to produce the evidence, the judge included nearly all of the $70,000 in
the taxpayer's income, allowing a reduction of only $5,000 for each year in
question, based on the taxpayer's record of gambling winnings in subsequent
years.

The issue in the second case was an $8,500 deduction for moving expenses paid
in cash. In 2002, the taxpayer moved from Ontario to Alberta. He claimed to have
paid his wife's relative $8,500 for moving their household goods and a Honda
Civic.

The taxpayer testified he had a verbal deal with the mover. He received
$12,000 from his new employer to assist with the move and he claimed he cashed
the $12,000 cheque at a Royal Bank branch, then gave the mover the $8,500
service fee in cash without getting a receipt, testifying "a receipt was
promised but never delivered."

The judge was highly suspicious of the transaction: "It is not credible that
anyone would have a mover move household goods across Canada without a written
moving contract; or if they were to be insured [as here] without a written
insurance contract. Nor is it credible anyone would pay out $8,500 in cash and
not get a receipt of some kind."

The judge disallowed the claim for $8,500, concluding "there are no
contracts; there is no ... cheque for $8,500; there is no receipt and there are
no witnesses. The [taxpayer] is the author of his own misfortune."