July 9, 2007, 2:25 am

The Canadian Way of Paying

by: The Financial Blogger    Category: Miscellaneous
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I have random personal finance discussions with my coworkers on a daily basis. We exchange points of view, strategies, money saving tips. It is also a great source of inspiration for this blog. Last week I was talking with one of them about landscaping and how expensive it can get. This is when he used a funny expression; “when it comes to the house, I pay the Canadian way” (maybe I should use a TM right beside the expression!). What’s up with the Canadian way of paying? What are we doing different than others? And mostly important, why are we doing it?


The Canadian way of paying can be explained in only one word: Cash baby! “I’ll pay cash, can I save taxes? Nope, I don’t need the receipt, just put it in the truck, it will be just fine”. This it how it goes in our beautiful country! No receipt, no guaranty, no taxes. This also leads to undeclared income which leads to more tax avoidance. Is the system wrong? Can it be more regulated? Those are really good questions but clears answers are hard to obtain from politicians.


As it is the case for several Canadians, my marginal tax rate is around 40%. If you are making a good income and you are not living in Alberta, this is probably your case too. However, we tend to forget that we are not done yet with the Government. Taking half of our paycheque with taxes, EI and others was not enough. GST and provincial taxes comes into play when we buy goods. If you are a house owner, it’s even worst as municipalities will charge welcome taxes, municipal taxes and school taxes. Then, when you think that your last five bucks is yours, your little one is asking you “Daddy, I would like to go to the store and buy some candies”. On your way out to the house, you just put your credit card on the shelf thinking that your teenager will ask you to buy more expensive “necessary” clothes for school. No wonder why we are trying to avoid paying a bit of taxes by paying cash!


Saving up to 14% in some provinces sounds like a real good deal for most of us. Why paying that extra hundreds when you can keep it in your pocket? This is how we see things. However, there is another side of this “tax fee coin”. By paying goods cash, you contribute to wipe out considerable revenue from the Government. You do not feel sorry neither guilty? Well let’s see what is happening next then.


You pay cash, save taxes and it is the end of the story for you as a single individual. However, the entrepreneur selling goods without cash will not declare this revenue to CCRA as well. He will use the cost of producing goods or service as a charge and will not include any revenue related to the same activity. Therefore, he will not just save tax income from his work but also benefit from a tax deduction as expenses will decrease his declared earned income. In the end, he might pay some of his employees under the table in order to save more taxes. This obviously ends up into huge taxes loss for the Government and they are taking this factor in consideration when they design their budget.


The silly part about this whole process is that it does not have such a bad impact. In fact, instead of having more money in the Government pockets, these funds are being reinvested in our local economy. This “black money” creates job and add more fuel to our capitalist system. However, it is regrettable to think that honest citizens are paying their fair amount of taxes when several individuals will simply save more money and pay the Canadian Way™. I have to let you go for now, my friend found a good deal to do my landscaping…

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Awesome article. Funny thing, most stores in China Town toronto accept payment “The Canadian Way”. 🙂 Not that i’ve tried it…

by: The Financial Blogger | July 9th, 2007 (3:59 pm)

FT, I guess the Canadian Way is getting across all cultures 😎

Man, I keep ending up back here… this time from the Carnival 🙂

The government knows about the huge black market, especially in the trades sector, but they haven’t really found a good solution to it, other than to collect a few more tax dollars from those who aren’t cheating.

Admittedly, un-taxed cash circulates more, but when employers start paying their employees under the table, those employees are actually losing government-backed employment protection which then becomes the easiest outlet for underpaid illegal workers, which is ridiculously common in the states. What’s more companies that pay mostly with cash will avoid legally hiring workers, so they actually start suppressing the pay of “honest” workers when the demand is low.

Things get worse when you gather 1000s of people who don’t have banks accounts and are all paid in cash. B/c then abundant cash reduces the threshold that holds back muggings and break-ins and no one has protection, they just have cash 🙁

We’re actually lucky in Canada that this isn’t a big problem, but this is a huge issue in the states. With even the mutter of “illegal alien” firing up huge debates. At it’s basis though are the millions and millions of illegal aliens being paid in cash that are not contributing to the tax system. They’re sending their kids to public schools and playing in public parks and using public transportation, but they’re not actually paying “public fees” (taxes), they’re just leeching.

I wish that we could repeal all of the consumer taxes and just incorporate them with income taxes (I just moved to AB, so I’m halfway there), however, this doesn’t remove the incentive for small companies to accept cash and not report. Or even to charge less for cash transactions as some contractors already do.

Of course, I don’t actually have a solution that isn’t terribly draconian 👿 so I’m kind of at a loss as to what the solution really is.:sad:

by: The Financial Blogger | July 22nd, 2007 (6:32 am)

Hi Gates,
I hope you signed-up for my RSS feed or you bookmarked by blog by now:smile: Your comments are well appreciated!
I guess the solution start from any individual thinking about paying the Canadian Way. If we all make an effort by asking for a receipt, small company owners will not have other choice but to declare their income. However, thinking it will happen some day is being a bit too optimistic!

[…] The Canadian Way of Paying from the Financial Blogger. A post with an interesting point of view on people avoiding taxes by paying cash. Financial Blogger’s first post: 11/15/2006. […]