Cash Income and Taxes
Cash income is taxable like any other. How CRA finds unreported cash, the penalties, and how to fix past years.
The short version
- Cash income is taxed exactly like any other income. Business income paid in cash goes on form T2125; wages paid in cash without a slip go on line 10400 of your return.
- "No receipt, no record" doesn't mean "no tax." CRA can estimate unreported income from your bank deposits, spending and net worth, and the burden is on you to prove its estimate wrong.
- Penalties for leaving income out: 10% of the unreported amount for a repeat failure, or 50% of the tax for gross negligence, plus interest at 7% (fourth quarter of 2026).
- If you're a GST/HST registrant, you owe GST/HST on cash sales too, even when the customer paid "cash, no tax."
- Coming forward before CRA contacts you, through Change My Return or the Voluntary Disclosures Program, is far cheaper than being found.
Cash Income and Taxes
Cash has a reputation for being invisible. It isn't; it just leaves a different trail. The deposit into your account, the truck you bought, the renovation on your house, the customer who claimed your invoice as an expense, the neighbour with opinions. CRA has seen every version of the cash business and has methods built for exactly this. Here's what you have to report, how CRA finds what wasn't, and how to clean it up if you're behind.
What Has to Be Reported
| Cash you received | Taxable? | Where it goes |
|---|---|---|
| Payment for work you did as a business (renovations, cleaning, snow removal, lessons, repairs) | Yes | T2125, with your expenses |
| Sales of things you make or buy to resell, including at markets | Yes | T2125 |
| Wages paid in cash by an employer, with no T4 | Yes | Line 10400, other employment income |
| Tips and gratuities not on a T4 | Yes | Line 10400 |
| Rent paid in cash | Yes | Form T776; see rental property tax |
| Cash gifts from family, inheritances | No | Not reported; see non-taxable income |
| Selling your own used belongings at a loss | No | Not reported |
| Lottery and casual gambling winnings | No | Not reported |
The general rule is on what counts as taxable income. The method of payment never changes the answer: cash, e-transfer, cheque, crypto or a case of beer, it's the same income. (Payment in goods or services, called barter, is taxable at the fair market value of what you got.)
Do I have to report this cash?
Describe what the cash was for, who paid you and how often. The assistant tells you whether it's taxable, which line it goes on, and which expenses you can deduct against it.
How CRA Finds Unreported Cash
- Bank deposits analysis. Deposits that add up to more than your reported income need an explanation: a loan, a transfer, a gift. Without one, CRA treats them as income.
- Net worth assessment. CRA compares what you owned at the start and end of a period, adds what you spent to live, and taxes the difference that your reported income can't explain.
- Third-party information. Your customers' expense claims, T4A slips from businesses that hired you, and, since 2024, reports from digital platforms on their sellers.
- Industry comparisons. Your margins against similar businesses. A restaurant reporting the food costs of a busy kitchen and the sales of an empty one tends to stand out.
- Leads. CRA runs an informant leads program, and many audits start with a tip.
The normal reassessment period is three years from your notice of assessment, but where income was left out through carelessness, neglect or fraud, there's no time limit.
The Cost of Getting Caught
| Penalty or charge | Amount |
|---|---|
| Tax on the unreported income | At your marginal tax rate, plus CPP on business income |
| Repeated failure to report income | If you failed to report $500 or more this year and in any of the three previous years: the lesser of 10% of the unreported amount, or 50% of the difference between the understated tax and any tax withheld on it |
| False statement or gross negligence | The greater of $100 or 50% of the understated tax |
| Interest | Compounded daily at the prescribed rate (7% in the fourth quarter of 2026), on the tax and the penalties |
| GST/HST | The GST/HST you should have collected, if you were (or should have been) registered, plus its own penalties and interest |
Tax evasion is also a criminal offence, with fines of up to 200% of the tax evaded and possible jail time. That's reserved for deliberate cases, but it exists. See late payment interest for how the interest adds up.
"Cash, No Tax" and GST/HST
If you're registered for GST/HST, every taxable sale includes it, whether or not you charged it. Give a 13% "cash discount" in Ontario, and you've paid the HST out of your own pocket: CRA calculates it on what you were paid. If you're not registered, watch the total: cash sales count toward the $30,000 small supplier limit like any other sales. See the GST/HST small supplier rule.
Get your GST/HST set up right the first time
The GST/HST SmartFile runs both $30,000 tests on your sales, compares the quick method with the regular method, and fills in form GST74 if the quick method wins.
Running a Clean Cash Business
- Issue a receipt or invoice for every sale, or keep a daily sales log with totals.
- Deposit the cash into a business account, intact, before spending it. Paying expenses straight from the till is what makes records unprovable.
- Record cash you keep for yourself as owner's drawings, after it's recorded as a sale.
- Keep receipts for cash expenses too. Unreported income and unclaimed expenses often go together. See business expense deductions.
- Keep it all six years. See how long to keep tax records.
Behind on Reporting Cash Income?
There are two ways back, and both beat waiting:
- Change My Return or a T1-ADJ, for a year or two of modest amounts. You pay the tax and interest. See how to change a tax return.
- The Voluntary Disclosures Program, for larger amounts or several years. Since October 1, 2025, an unprompted disclosure can get full penalty relief and 75% relief on interest. It must be voluntary: once CRA contacts you about the income, relief shrinks. See unfiled tax returns. See the Voluntary Disclosures Program.
If you've received a CRA letter asking about deposits or income, upload it to the document analyzer to see what CRA is asking for and your deadline. For the side-income rules in general, see side hustle taxes.
Cash Income Questions
Do I have to report cash income in Canada?
Yes. Income is taxable however it is paid. Business income paid in cash goes on form T2125, and cash wages without a T4 go on line 10400 of your return.
How does CRA find out about cash income?
Through bank deposit analysis, net worth assessments, information from customers and platforms, industry comparisons and tips from the public.
What is the penalty for not reporting cash income?
If you fail to report $500 or more in a year and in any of the three previous years, the penalty is generally the lesser of 10% of the unreported amount or 50% of the related tax shortfall. A gross negligence penalty can be 50% of the understated tax. Interest applies on top.
How far back can CRA go for unreported cash income?
Normally three years from the notice of assessment, but there is no time limit where income was left out through carelessness, neglect, wilful default or fraud.
Do I charge GST/HST on cash sales?
If you are a GST/HST registrant, yes. GST/HST is owed on taxable sales whatever the method of payment.
Sources: CRA, False reporting or repeated failure to report income; Guide T4002, Chapter 1; Reporting Rules for Digital Platforms. Checked October 2026. The prescribed rate applies to October to December 2026 and changes quarterly. Criminal penalty figures are summarized from the Income Tax Act; we have not covered GST/HST penalties in detail.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.