While the work goes on

Here are some things you should do while the renovation project is underway:
- Take a portrait-style picture of the contractor before work starts or as soon as possible after it starts - here's why.
- Keep a daily journal summarizing significant events and discussions, and all payments.
- Visit the work site regularly; take pictures and make notes.
- At each visit, ask about inspection reports. Contractors really hate to provide unfavorable reports because they reflect badly on their workmanship. Establish a relationship with your municipality's building inspectors and check in with them periodically. You may get some surprises.
- If you're making progress payments, verify the progress.
- Home renovation contractors are at the top of the CRA shit list for tax evasion, accounting for almost 30% of the $42 billion underground economy. If for some ungodly reason you're paying for anything on a cash basis, withdraw the exact amount from your bank's teller on the day you're supposed to pay the contractor. It'll make for a much more solid case later if a dispute about payments arises.

If you're dealing with a "cash under the table" contractor, report him to the CRA - after the project is finished.

Sometimes the request for a cash-under-the-table deal comes from the homeowner. There are many reasons why that's a bad idea. From the homeowner's perspective, he gives up his ability to have a warranty, his insurance is probably void in case of fire, and the quality of work will be reflected in the contractor's integrity, ie low. The homeowner will save the 15% HST in the near term, but down the road he'll probably make up for it in repairing shoddy work. The contractor stands to save a lot more, but if CRA gets wind of it, it's the contractor who goes to the wall - not the homeowner.

CRA puts the blame for cash transactions on the contractor, but the homeowner could have different problems. You're opening yourself up to some really ugly complications - if you've got a sleazy contractor, and 80% of them are, does he really have liability insurance and workers compensation coverage? If one of his workers gets hurt on the job, you're the one who'll get sued. If he or his people damage the neighbour's property and he doesn't have liability insurance, you get nailed for that, too. It would be best if you don't try to run these things through your own insurer - you're likely to find you no longer have insurance. Does he have the resources to back up that two-year warranty he promised you? If you'd read the contract before you signed it, you wouldn't be having these problems.

If you feel you have to pay cash, make sure the contractor understands that you're still keeping 10% of all payments for lien holdback. Tell him this after you've agreed on a price so you'll know if he's padding the payments to make up for the lien holdback. If the contractor has been getting cash payments from you without receipts, before making the final payment, add up all the cash payments and write up a receipt for that amount, including a brief description of the work. Make him date and sign it. If he won't sign, don't pay him. His work is done so tell him to leave, and to come back for his money when he's ready to sign the receipt. Tell him the 60-day countdown for paying the lien holdback starts when he signs the receipt. When he does sign, keep 10% as the lien holdback - contract or no contract. Have your lawyer do a title search just as the 60 days are up just in case the contractor has filed a lien. Strictly speaking, you don't have to pay him until 65 days have passed - that's when you have to start paying interest on the lien holdback. Also, you can keep 2.5% of the holdback essentially forever, if there are any minor deficiencies in materials or workmanship. Check paragraph 13 in the Lien Act for a definition of "substantially complete."

Cash payments are potentially huge problems - especially for the contractor, but the homeowner, too, could be dragged into the fallout. For example, if you paid the guy $20,000 under the table and CRA gets wind of it, they'll assess the contractor for $3000 for HST, followed shortly by interest and penalties. CRA may want to have a look at your financial situation as well to see who else you've been paying under the table. They've got 35 teams dedicated to tracking tax cheats, and many of them spend their time on building and reno contractors.
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