Legitimate owner-operators may be caught in CRA’s crackdown on personal service businesses
A tax specialist who represents owner-operators says Canada Revenue Agency (CRA) may be incorrectly classifying legitimate trucking owner-operators as personal service businesses (PSBs), potentially exposing them to massive tax bills despite owning their own equipment and paying their own expenses.
Scott Taylor, vice president of Transport Financial Services, said his firm is currently handling six CRA reviews involving incorporated owner-operators who own their own trucks but are being scrutinized because they haul exclusively for a single carrier.
One Ontario owner-operator recently received a reassessment that disallowed fuel, repair and other operating expenses, resulting in an additional tax bill of about $130,000, Taylor said. CRA determined he was a PSB solely based on the fact he hauls for only one carrier — something that’s not at all uncommon for legitimate owner-ops.
“He owns his own truck. There’s no lease, no financing. His name is on the bill of sale. He works for a well-established carrier in Ontario, and this is just wrong,” Taylor told trucknews.com.
According to Taylor, the owner-operator provided all the documentation requested by CRA, including records demonstrating ownership of the truck and operating expenses. He said the reassessment arrived without any explanation or opportunity to respond.
Taylor believes CRA auditors are placing too much emphasis on the fact that many owner-operators work for only one carrier at a time.
“That’s the way this whole relationship works,” he said. “You need the carrier’s insurance, their operating authority, their permits and everything else to go up and down the road.”
While working exclusively for one carrier can be a factor CRA considers when determining whether a corporation is a personal service business, Taylor argues it should not outweigh other indicators of an independent business.
“You can leave whenever you want. You can hire another driver to operate your truck. You own the equipment. You have the risk of profit. You pay for the repairs and the fuel,” he said. “They don’t seem to be caring about that right now.”
Taylor said the six files his firm is dealing with involve different CRA offices, leading him to believe the reviews may be part of a broader enforcement initiative.
“If we’ve got six, there has to be more,” he said.
The concern comes as CRA continues efforts to crack down on arrangements where drivers incorporate primarily to receive tax advantages while functioning as employees and operating company-owned trucks. Those arrangements, commonly referred to as Driver Inc., have been the focus of growing enforcement efforts across the trucking industry.
Taylor stressed he supports CRA’s efforts to identify illegitimate arrangements but worries legitimate owner-operators are now being caught in the process.
“We’re happy to see they’re trying,” he said. “But they’re trying with the wrong information.”
His firm plans to file notices of objection on behalf of affected clients and is also raising the issue with industry associations.
Taylor believes trucking organizations need to explain to CRA how the owner-operator model functions in practice.
“These agents are armed and dangerous and not getting it,” he said. “They’ve obviously been given a directive, but the questions they’re asking and the way they’re interpretating the answers don’t reflect how legitimate trucking works.”
Transport Financial Services is encouraging other owner-operators who have received similar reassessments to come forward.
Trucknews.com asked CRA how it determines whether an individual is a legitimate owner-operator or PSB. It has yet to receive a response.
Have you had a similar experience? We’d like to hear about it. Please email james@newcom.ca or comment below.
Have your say
This is a moderated forum. Comments will no longer be published unless they are accompanied by a first and last name and a verifiable email address. (Today's Trucking will not publish or share the email address.) Profane language and content deemed to be libelous, racist, or threatening in nature will not be published under any circumstances.
My accounting firms have two companies under review. CRA has criteria for PSB and completely ignore all the factors except for the one employer part. One company is now to a letter of objection and the other is in the first review stage.
CRA has gone mad. CRA has double the employees over the past six years with so many employees who have no idea what they are doing, as has clearly been seen in news reports. It all costs the country extra salaries and then adds to the cost by having corporations pay for reviews that are clearly outrageous. How can the CRA look at a corporate tax return with a class 16 asset worth several hundred thousand dollars, and then see expenses in the tens of thousands of dollars for fuel, repairs, and insurance and then come to the conclusion that this must be a PSB? Maybe a corporate tax return that claims it is a trucking company with no assets and no expenses with only income would make more sense.
Frustrating.
I’m going to presume that as usual governments want us to fully understand and accept “nuance” when criticizing politicians and bureaucrats that should be working for us while being Ham fisted in addressing any perceived problem in the trucking industry and ignore the huge burden it puts on small businesses and owners that are literally driving all day and sleeping at government mandated intervals.
Perhaps it’s time to do a much better job of keeping the rules clear, intervention in predatory behaviour from carriers who use employees to finance their companies instead of paying them to do a demanding and highly skilled job.
Look at the real issues, and the actual work environment.
I suspect an ai filter was used to just grab a bunch of “suspect” returns and lump them in without any effort to get a handle on the industry and how it actually functions.
Contracts that can’t last more than 364 days or you’re not in business? Is that the standard? Really?
How does the government get away with doing multi billion dollar infrastructure projects that contract with a specially built business entity to do that one contract? Private India does this all the time to complete massive contracts that take decades, why are they not treated as government employees? Why allow contracting at all? If a trucking company has an exclusive contract to provide 100 drivers to an automaker for 5 years are they not just now the employees of the automaker? All the executives, office staff and drivers and mechanics to do that contract, if they dedicate their efforts to fulfill that contract and don’t diversify for three years while they focus on that and start selling to other companies what they’ve done for ABC Cars Co. They can’t be a company? Let’s be serious about this, let’s work with reality not some arbitrary way of thinking in an industry that has a lot of peculiarities.
Outsourcing of logistics has become the norm for many companies. And good small efficient o/o companies are a huge part of this industry. They can’t all necessarily be multi customer service, it doesn’t always make sense, some of the best drivers and best equipment is that that is run by owner operators who have a combination of experience, pride and passion along with huge financial incentives to keep their equipment and drivers in the best shape possible.
And you’ve going to penalize them? Or the individual drivers taken for a ride by the “lease to own” bs from bigger carriers that keep bankruptcy of their employees as a business model??
It’s not that hard to look for the problems where they exist and let hardworking truckers keep on rolling.
Hlo.
I am also and owner operator and working with well established company since 40 years and I am working with them from last 3 years.
Entered different contacts each year after discussing things with them
I got that same psb letter and now I sent all my lease/ownership documents including all the repair invoices. As other owner operators are getting bills , I am scared that I will also receive the same. This is totally inappropriate and they are giving us free mental stress.
THERE SHOULD BE SOME STEPS TAKEN AGAINST CRA AS THEY ARE DOING IT WRONG.
I am working for a well established carrier in Ontario for many years. All the sudden CRA determined that I am not a sub contractors but my work is classified under PSB. My taxes were reassessed and was sent a tax bill of $92000 to pay. I pay my own plates, insurance, fuel and maintenance. As per cra they think company has more control over my work and my daily duties and hours to work which is not true. This entire process is stressful. Hopefully someone out there will be able to explain to CRA how things works with owners operator working model.
Connect the dots, my friends … The ‘powers not-to-be’ do not want small businesses …
I am an owner\-operator operating through my incorporated business\. I recently received a notice stating that my corporation has been classified as a Personal Services Business \(PSB\) and that I owe $1,030 k in additional taxes\.
After receiving the notice, I contacted the CRA investigator to understand the basis for this decision\. During the review, I provided all of the requested documentation, including my lease agreement, service contract with my customer, and any other supporting documents requested\. I also explained that I am responsible for my own operating expenses, including commercial insurance, vehicle registration and plates, safety compliance, maintenance, and all other business\-related costs\.
Despite providing this information, I was informed that the decision remains unchanged\. I am finding this very difficult to understand, as I am a genuine independent owner\-operator running my own incorporated business, not an employee or company driver\.
This situation has caused me significant stress and uncertainty.
I recently found out that I am a high risk to offend or break the law because my incorporated company has less than 20 trucks. I own a tree service not a trucking company. Any time I buy, sell, or change weight registration I have to bring my letters of incorporation and 2 other items that prove I am who I am. The people at the Service Ontario office in Bracebridge know who I am. This I was told was brought on by people scamming the system. I assume it is the trucking industry they were talking about