Imagine coming home from work one day and finding a letter in your mail box that says you owe Revenue Canada $100,000.
That’s what happened to a childhood friend of mine recently, who with her owner/operator husband runs a cartage business out of small-town Ontario.
Now they’ve sold their house and are trying to sell their trucks, in a bid to pay off Revenue Canada as fast as they can.
All because of some bad advice.
The advice came from an accountant, who, years ago, told my friend and her husband that the Canadian Pension Plan would soon fold. The accountant advised them to pay their drivers as if they were independent contractors.
That’s what they did, and that’s why Revenue Canada has come back years later, claiming they owe $100,000 for unpaid benefits.
You see, their drivers didn’t qualify under tax law as self-employed.
It’s not the first time a carrier has suffered for being confused about what constitutes an employee. Last August, Mississauga-based Lyte Entreprises claimed a dozen of its truckers were independent contractors in a tax court case and lost.
Here’s why – according to Toronto Tax Court Deputy Judge William E. MacLatchy, the fact that Lyte owned the “tools” being used, in this case the trucks, and covered all their expenses, clearly “pointed to an employer/employee relationship.” And other factors also pointed to this kind of relationship, said the judge.
The judge made his call based on a precedent set in 1986 in the Federal Court of Appeal, where a company called Wiebe Door Services Ltd. claimed its installer/repairmen were independent contractors, and therefore not liable for CPP and unemployment insurance withholdings.
The revenue minister at the time argued the installer/repairmen were in fact employees, and created a four-part test to determine whether an “employment relationship” exists, consisting of the following:
The degree or absence of control, exercised by the alleged employer;
Ownership of tools;
Chance of profit and/or risk of loss;
The degree of “integration” of the alleged employee’s work into the alleged employer’s business.
According to Revenue Canada, these are the factors that also determine whether a trucker is an independent contractor or an employee.
Important factors to keep in mind when you’re an owner/operator with several trucks, who can’t afford to pay a $100,000 tax bill.
And the sort of thing the person taking care of your books should know.