A British Columbia judge has ruled that all-cash transactions designed to evade GST are illegal and unenforceable in court, calling the practice "nefarious" and a part of the underground economy.Blacklock's Reporter says in a recent case involving a Surrey lumber yard, Justice Jay Solomon of Provincial Court in Surrey, B.C., refused to enforce a $20,640 claim for unpaid invoices, citing the illegal nature of the agreement. The lumber dealer, who preferred cash payments, was found to have engaged in transactions specifically designed to avoid charging and collecting sales taxes, including the Goods and Services Tax (GST) and Provincial Sales Tax (PST)."I would decline to enforce this illegal contract," wrote Solomon, noting that the buyer and seller "entered into this cash-for-product contract for a nefarious purpose, to avoid the payment and collection of sales taxes."The court was told that the lumber dealer typically collected payment after delivery, with company records showing that cash payments from the client totaled $64,050 over an 18-month period. Solomon described the scheme as significant, further condemning the dealer for being "actively engaged in what is commonly referred to as the underground economy."Solomon dismissed the lumber yard’s claims of unpaid invoices, asserting that the contract was illegal due to the dealer’s deliberate avoidance of proper invoicing and tax collection. "I decline to make any award in favour of the claimant," he wrote, emphasizing that it is the seller's responsibility to record transactions accurately, issue invoices, and remit both PST and GST as required by law.While acknowledging that the customer also participated in the unlawful scheme, the judge stressed the seller's primary responsibility for ensuring legal compliance.The ruling comes as the Canada Revenue Agency (CRA) estimates that billions of dollars are lost annually in uncollected GST on cash transactions. A 2022 CRA report revised the estimated tax gap from $2.9 billion to $6.5 billion. The CRA has highlighted the need for a cultural shift to address the widespread issue of tax evasion, with a 2019 study revealing that 13% of tax filers admitted to considering "all forms of tax cheating," while 34% would pay cash for a service to get a cheaper price.“A cultural shift in society is needed to effect change,” stated a CRA memorandum, urging Canadians to recognize the broader implications of the underground economy, such as the potential public benefits lost due to tax evasion.
A British Columbia judge has ruled that all-cash transactions designed to evade GST are illegal and unenforceable in court, calling the practice "nefarious" and a part of the underground economy.Blacklock's Reporter says in a recent case involving a Surrey lumber yard, Justice Jay Solomon of Provincial Court in Surrey, B.C., refused to enforce a $20,640 claim for unpaid invoices, citing the illegal nature of the agreement. The lumber dealer, who preferred cash payments, was found to have engaged in transactions specifically designed to avoid charging and collecting sales taxes, including the Goods and Services Tax (GST) and Provincial Sales Tax (PST)."I would decline to enforce this illegal contract," wrote Solomon, noting that the buyer and seller "entered into this cash-for-product contract for a nefarious purpose, to avoid the payment and collection of sales taxes."The court was told that the lumber dealer typically collected payment after delivery, with company records showing that cash payments from the client totaled $64,050 over an 18-month period. Solomon described the scheme as significant, further condemning the dealer for being "actively engaged in what is commonly referred to as the underground economy."Solomon dismissed the lumber yard’s claims of unpaid invoices, asserting that the contract was illegal due to the dealer’s deliberate avoidance of proper invoicing and tax collection. "I decline to make any award in favour of the claimant," he wrote, emphasizing that it is the seller's responsibility to record transactions accurately, issue invoices, and remit both PST and GST as required by law.While acknowledging that the customer also participated in the unlawful scheme, the judge stressed the seller's primary responsibility for ensuring legal compliance.The ruling comes as the Canada Revenue Agency (CRA) estimates that billions of dollars are lost annually in uncollected GST on cash transactions. A 2022 CRA report revised the estimated tax gap from $2.9 billion to $6.5 billion. The CRA has highlighted the need for a cultural shift to address the widespread issue of tax evasion, with a 2019 study revealing that 13% of tax filers admitted to considering "all forms of tax cheating," while 34% would pay cash for a service to get a cheaper price.“A cultural shift in society is needed to effect change,” stated a CRA memorandum, urging Canadians to recognize the broader implications of the underground economy, such as the potential public benefits lost due to tax evasion.
