[RobKanda]

Whilst the main concept itself is subject to local legal variations, the idea of contractors being able to make their jobs more accessible and more affordable to the average homeowner resonates around the world. What Kanda aims to do is to take this legal restriction minefield away from the contractors, so they can continue to do what they do best, whilst offering their customers an affordable payment plan. Securing a lien when doing smaller work, such as fitting a boiler or rewiring a house, is not ideal when you want to get paid as soon as the job is done. If the customer instead arranges finance with us, the payment can be immediately paid out and the contractor can continue on with their business without worrying if they will get reimbursed. Finally, the concept of fronting the money for the materials arises from the fear of the contractor not getting paid at all; if the job isn't paid for, at least the contractor won't be out of pocket. With us, the money is secured before the job starts. They don't need to worry about being out of pocket from a customer refusing to pay or being unable to pay.

[stormqloud]

Fronting the money for the supplies usually comes from the fact the tradesperson went on a bender after you paid him last time!

Also in the area where I live, most home trade jobs are done with as much cash as possible to avoid taxes.

The pay cash tax savings is greater then any bank financing.

When you pay 50% income taxes you can see that the incentive to work cash is much much greater then formal financing.

If a car repair was going to cost $1000, the tradesperson keeps $500 after tax. He's better off to offer you $750 cash. Take $500 now (he's paid up).

Then if he still collects the $250 cash that's pure bonus.

I didn't even factor in the 20% sales taxes on the work the buyer would have to pay.

All I can say is don't try to expand to a newly third world country like Canada. I just can't see it working here.

[RobKanda]

Most tradespeople are professionals, running professional businesses. Whilst your tradesperson might have gone on a bender with the cash last time, that wouldn’t be possible with Kanda. The money doesn’t get to the tradesperson until they’ve completed the job and the customer signs off on it. Then they can go on all the benders they want, they’ve done the work and it’s now their money. Whilst many jobs are still done in cash, the average person doesn’t have sufficient cash in their account to pay for larger outlays, such as a boiler, but could afford it on a monthly payments. What happens in that case? They just don’t get a new boiler, despite needing one? No, they look for an alternative payment option. Kanda offers the tradespeople that option, to offer monthly payment options to their customers, with zero risk to their own business. Finally, in terms of taxes, surely the income tax only applies on profit, with material costs subtracted. But regardless of that, paying tax on a job and getting income, versus not getting the job and not getting any income is surely better. $500 after tax is better than $0 because the customer can’t use you. And when your competitor is offering monthly plans, all of your customers will go to them to get their work done instead

[stormqloud]

You are talking about union construction workers here. They are only used on commercial jobs mostly.due to the price. All the good trade people work commercial and get paid well. Residential is left with people that can't get the good union jobs mostly.

[sterwill]

I understand the desire to avoid paying tax by taking cash, but is it common that a tradesperson is paying 50% income tax? I only have a US resident's perspective, but that rate seems very high.

[stormqloud]

In Canada the top rate of 50 percent hits anyone making over $60k Usd for comparison.

Most trades in Canada are max tax rate, because the max tax rate kicks in at extremely low levels compared to USA.

[sterwill]

Interesting, that's a pretty low threshold for such a high rate.

[cldellow]

stormqloud seems to have a bit of an axe to grind, so it's worth taking their words with a grain of salt.

Someone earning 60K USD in Canada (~75K CAD) would have a marginal income tax rate ranging from 27% to 38%, depending on their province. If they're a contractor, they'd have access to a bunch of deductions against their expenses. They could further use an RRSP to shelter their income, or at least defer taxes to future years with lower income, thus driving their average tax rate down.

[bombcar]

If you count the 15% self employment tax (social security) it can easily reach 50% after state and federal.

[sweeneyrod]

In which country?

[hervature]

The USA, the second highest bracket for federal (greater than $160,000) is 32%, then you have the 15.3% self-employment tax (social security + medicare), that alone is 47.3%. The minimum state income tax in most states will push you over 50%, but at $160,000 in California, that would be an additional 9.3%, so 56.3% total. Of course, we're ignoring credits but I assume $160,000 for a contractor in SF is pretty regular.

[boulos]

Fwiw, those are marginal rates and you deduct the “employer half” of self-employment taxes.

So a (filing single) contractor making 160,000 in California would pay more like $60k in total taxes (which is still 37.5% effective).

But given the number of UK folks for this topic, the “Social Security” and FICA amount (~15%, so nearly half of “tax”) is effectively similar to National Insurance.

[jfengel]

Note that over $137,700 you stop paying that 15.3% self employment tax. So you never really pay that maximum combined rate.