Canada’s trucking industry has been stained by yet another tax scheme.
For months the Canadian Trucking Alliance (CTA) has been crying foul over a growing number of fleets that set up drivers as “independent” businesses in name only, avoiding source deductions for income tax and offering empty promises for those who turn wheels for a living.
Its cries appear to have been heard. Now the Canada Revenue Agency (CRA), joined by Employment and Social Development Canada (ESDC), have issued guidance on how they view such business structures. Crackdowns are likely soon to follow.
Many of the incorporated drivers would have trouble passing the sniff test to determine if they are really independent rather than employees, of course. Just how many truly have the ability to work for other companies, set their own hours, or turn down work? Because those are just a few of the standards that must – and let’s emphasize the “must” – be met.
Otherwise these drivers will be deemed to be Personal Service Businesses (PSBs). Those are not entitled to the income tax deductions enjoyed by corporations, can’t deduct many expenses, and face a combined federal and provincial tax rate of 33%.
I doubt many of the drivers entered such structures knowingly. Instead, they were likely sold a bill of goods by recruiters, placement agencies, or selected accountants. Why bother paying the same taxes as an office employee, they might have been told. Wouldn’t it be better to be the master of your own business – and write off expenses like cars, meals, and office space? Maybe spread an income around family members by naming them as “employees”? Doesn’t that sound like a better deal for everyone involved?
CRA says you’re an employee if you have to accept all loads, follow specific routes, report daily and explain any delays or downtime regardless of the deadline, need approval before taking the truck for a repair, or leave the fleet to resolve complaints and deliver discipline. The self-employed negotiate rates when contracts are signed and renewed, own or lease a truck, can pick and choose loads or routes, don’t have to report in over trips, or can hire a replacement driver and pay their wages. Personal Service Businesses provide equipment to secure loads, pay for helpers to load or unload, are responsible for penalties linked to late deliveries, pay liability insurance, and can keep all the profits earned from backhauls.
All of those are just a few examples.
The incorporated drivers who don’t meet the various checks and balances are the ones who will pay the biggest price when the taxman comes asking for the dollars owed. Maybe they should begin asking questions about vacation pay or overtime they would have been owed, or other benefits that are afforded to employees.
My hope is that the fleets who have exploited the loopholes will pay a steep price because they are the ones gaming the system, building entire business models on the backs of the drivers they supposedly value.
This is hardly the first scheme set up to shield the fleets from such business costs, of course. We have seen so-called “never-never plans” in which fleets set up owner-operators in name only, with structures that ensured those who shoulder the risks for equipment never actually have a chance to own their trucks and define their destinies. As for flexibility to work for others? Just try to turn down a load to see how real that business model is.
These schemes are a symptom of a larger problem. As the trucking industry stares into the sinkhole that is a growing driver shortage, with fewer people looking to explore careers behind the wheel, many fleets continue to look for ways to manage their risks at the expense of those who do the work.
Here’s your pay per mile. Delayed at the border? That’s too bad. Growing requirements for inspections? You better come in earlier to check over the equipment. Delayed in a customer’s yard? Nothing we can do.
Yes, margins are tight. The bureaucratic burdens continue to increase. But those who reap the rewards in terms of profits should be the ones who shoulder the risks.
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