TORONTO, Ont. – The jig may be up for drivers and carriers operating under the Driver Inc. model.
The Canada Revenue Agency (CRA) and Employment and Social Development Canada (ESDC) have clarified how they will treat drivers who incorporate themselves and operate company-owned vehicles, the so-called Driver Inc. model.
The Canadian Trucking Alliance (CTA) has fought the expanding practice, as it opens the door to the possibility of widespread tax manipulation, since no source deductions come off the driver’s pay. CRA has agreed, acknowledging that if an individual incorporates, but has no labor characteristics that are different than an employee – for example, working exclusively for one employer or not having registered any equipment assets – that person is then deemed a Personal Service Business (PSB).
PSBs are: not entitled to income tax deductions available to other corporations; cannot deduct most expenses available to other corporations; are subject to a combined federal and provincial tax rate of 33%; amounts paid by one business for services provided by another business must be reported to CRA, but are not subject to statutory payroll deductions; and if the corporation pays salary and wages to one or more employees, these amounts are subject to withholding of income tax, CPP and in some cases EI.
Further documentation on the CRA’s position can be found here.
CRA told the CTA that beginning with the 2018 tax year, all payments made to self-employed individuals deemed to be PSBs must be reported on a T4A slip. Now, the CTA is calling on CRA to fully enforce this policy nationally and to increase fines for non-compliance.
“CTA applauds CRA’s actions. We now have clarity of the rules from a tax filing and enforcement perspective regarding Driver Inc.,” said CTA president Stephen Laskowski. “We will begin educating the industry on this policy and ensure that it is enforced.”
ESDC has also responded to the CTA, noting that incorporated drivers operating company vehicles are entitled to the same treatment under the law with regards to overtime payments, general holidays, vacation time and pay, as well as termination and severance, as employees.
ESDC said it would consider conducting inspections in high-risk industries, such as trucking.
“We believe Driver Inc. is costing Canadian government hundreds of millions of dollars in lost tax revenue from drivers not filing as a PSB or simply not properly reporting their income,” says Laskowski. “We are hopeful, the combined actions of CRA and ESDC will finally restore labor standard compliance and tax fairness throughout the trucking industry.”
The CTA is planning an advertising campaign to create awareness about the issue.