Landlords beware! Those
who watch Fair Go on TV1 will be aware that a large number
of the items are about tradespeople who have not completed jobs; have taken an inordinate amount of time to complete (or even not completed) or who have simply done a very poor job.
Sometimes, however, part of the problem are the
customers themselves who are quite happy to accept a lower cost for the job, made possible by cutting the Inland Revenue Department out of the equation. In a ‘cash-job’, the tradesperson simply doesn’t give an invoice and in return for the lower cost, requires payment in cash.
The direct result of this is a
loss of revenue for IRD and ultimately, higher taxes for everybody else.
a sketchy knowledge of what the job requires to be done properly and no knowledge of the laws relating to the work they are undertaking. Essentially, they are handymen but the jobs they are taking on frequently require them to be qualified. This also has the knock- on effect of depriving legitimate tradesmen of a job with the result that some qualified people leave the industry for some other occupation.
There are also other traps when ‘cash-only’ work ... it is far better to use
qualified people even if the short-term cost is a little higher.
Acceding to such illegal arrangements, however,
is likely to open the door to all sorts of problems. Unfortunately, the tradespeople who indulge in this type of behaviour may well have a propensity for other illegal activity. For the property owner, not receiving an invoice means that there is no record of a transaction and therefore little that can be done should the transaction go wrong – as it quite often will.
One group of people to whom the above applies, are
the owners of rental accommodation. Unfortunately, we come across many examples of jobs that have gone wrong because of poor workmanship. Most of these have occurred when owners have organised their own repairers to do the job either before we assumed the management of their properties or subsequently when they insist that when repairs need to be done, they will organise it.
Almost inevitably, when the owners organise
the work themselves, they use ‘price’ as the sole indicator of whom they should accept to perform the work required. We believe that it is far better to use qualified people even if the short-term cost is a little higher. What I mean by ‘short-term cost’ is best illustrated by an advertisement from many years ago. Broadly, it said ‘Buy quality and regret the expenditure only once’, meaning that if you buy quality, the first cost is the last cost.
Unfortunately, a large number of the people who
offer a discount for cash are not even qualified tradespeople. Quite often they no knowledge or only
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is done on a property. The most obvious one is how to ensure that the work is up to standard when any defects may take months or even years to manifest themselves. By the time it becomes evident that a sub-standard job has been done, it is going to be very difficult to bring the person to
account, without any supporting documentation. Further, assuming that the property owner is
actually filing any required tax returns and claiming for the repairs carried out, any tax audit of the books is going to show that there are gaps in the records as far as supporting evidence for payments is concerned. If, to get around that little problem, the property owner simply leaves out the compromised repairs and maintenance expenditure, then they will be paying tax on a net income that is higher than it need be.
Finally, it should be noted that payments ‘under-
the-table’ leave the investment property-owner very vulnerable to surprise tax audits from the IRD as any payment made without the benefit of an invoice leaves the taxpayer in the position of also having to pay penalties based on the value of the work claimed to have been done and the GST thereby avoided.
At Glover Real Estate, we act on the belief that
getting a job done properly, first time, by a suitably qualified tradesperson gives our clients the best outcome for the least cost.
For archive copies of these monthly articles, go to www.gloverrealestate.co.nz
and click on ‘home truths’ and then ‘home truths – back issues’.
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