It will soon be Spring and that means budget time for both the federal government and the Government of Ontario. CTA and OTA have been heavily involved again this year in the pre-budget consultations....
It will soon be Spring and that means budget time for both the federal government and the Government of Ontario. CTA and OTA have been heavily involved again this year in the pre-budget consultations.
With leadership campaigns, looming elections, the threat of war and the polls saying that Canadians want more money spent on healthcare, the budgets are probably more or less written already.
I have already discussed CTA’s pre-budget submission in a previous column, but to briefly recap, CTA recommends that the federal government:
Restore 80 per cent deductibility of meal expenses consistent with our U.S. competitors.
Employ fiscal instruments to speed the introduction of newer, cleaner truck engines recently mandated by Environment Canada and the U.S. Environmental Protection Agency, and to encourage technologies designed to reduce GHG emissions. Similarly, consideration should be given to lowering the excise tax on ultra low sulphur diesel fuel to promote introduction in advance of its mandated introduction in 2006.
The federal government should lead the way in restoring Canada’s highways by leveraging the participation of the provinces, municipal governments and the private sector in accelerated and strategic infrastructure spending. Consistent with the recommendations of the Canada Transportation Act Review Panel, CTA proposes the creation of an infrastructure fund, to be built up from current road use taxes and charges, that would see a commitment of long-term, substantial funding to upgrade Canada’s highways. Addressing infrastructure constraints at Canada’s land borders with the United States should be pursued on an urgent basis.
End the inequity in the treatment of apprentice mechanics by extending tax deductions announced in the 2001 budget to trailer mechanics.
In Ontario, let’s hope finance minister, Janet Ecker, hasn’t forgot what she said last fall: “…lower taxes are central to the government’s plan to increase the competitiveness and productivity of the Ontario economy. The government is committed to completing its current multi-year plan to make taxes more competitive and will outline further steps to promote economic growth in the 2003 Ontario Budget. …by cutting taxes, balancing the budget and restoring prudent fiscal management, we have positioned Ontario for economic growth and jobs.”
The trucking industry is the lifeblood of the Ontario economy. Without trucks the Ontario economy stops. Fully 90 per cent of all consumer products and foodstuffs used and consumed every day move by truck. The province’s high value-added manufacturing plants depend on trucks for their Just-in-Time shipments. Trade, which is the engine of Ontario’s economic growth, also depends on truck service. Over 75 per cent by value of all Ontario-US merchandise trade moves by truck. OTA believes that the current government has done much over the past five years to improve the business climate. In part, this reflects the government’s initiatives in corporate tax reform. The lowering of Ontario corporate tax rates and the phasing out of the provincial sales tax on certain business inputs were welcome initiatives.
However, we must do better. This is particularly the case in the post-Sept. 11, 2001 reality. We must continue to build a Canadian and Ontario advantage, in order to offset any of the losses in productivity and efficiency – real or perceived – resulting from continued problems at the busiest border crossings.
This will require more than broad-based tax measures. It will also require that attention is paid to ongoing problems with regard to the taxes being applied within specific strategic sectors. The trucking industry in Ontario is one such sector. All Ontario industries rely on truck transportation. Transportation costs are a significant factor in the final cost of goods sold in Ontario or produced in Ontario but sold elsewhere.
There are four major underpinnings of sound tax policy: the ability to pay; fairness and equity; no double taxation; and administrative efficiency (taxpayer and government). The current taxation of business inputs in the trucking sector by the province of Ontario fail on each score and represent a method of taxation that has grown out of date and is regressive. Nevertheless, the Ontario trucking industry continues to pay excessive levels of tax on its business inputs.
Taxes on business inputs are applied whether the taxpayer is profitable or not. In fact, the more a trucking company invests in safety, maintenance and the environment in Ontario, the more tax it pays.
Other Ontario industrial sectors, e.g. manufacturing, agriculture, do not pay sales tax on business inputs to anywhere near the same degree and level as in trucking.
Ontario stands alone in the way it presently taxes trucking equipment (tractors and trailers) compared to all of its major trading partner jurisdictions. As of now, 88 per cent of U.S. states have abandoned sales taxation on interstate trucking equipment, including all the major competitor states. In Canada, Quebec (as well as the Atlantic provinces) has effectively eliminated sales tax on trucking equipment by harmonizing its provincial sales tax with the federal goods and service tax. The major implication of this is that Quebec-based trucking firms now receive input tax credits on the purchase of their equipment as per the GST model. Alberta has no sales tax. Only B.C., Saskatchewan and Manitoba have a tax system similar to the MJVT.
The new Multi-Jurisdictional Vehicle Tax, or MJVT (introduced in Oct. 2001 to replace the provincial sales tax on tractors and trailers registered under the International Registration Plan), double taxes trailers in use prior to October 1, 2001. Most trailers have a useful life of 10-20 years.
Presently, Ontario trucking companies must administer three separate sales tax systems governing the taxation of their business inputs. This is nonsensical and costly. The MJVT is a complex tax. It requires carriers to segregate their fleets into those vehicles that cross borders and those that do not both in terms of the power units as well as trailers that they pull.
This can be a fluid situation. It further requires carriers to split and pro-rate individual expenditures on oil, lubricants, parts and service between the vehicles. MJVT audits only commenced in January 2003. We anticipate there will be problems with auditors attempting to sort this all out. This will be costly and inefficient given the sums involved for both carriers and for the auditors.
In the Fall of 2002, the special advisor to the Minister of Finance on property taxes, Marcel Beaubien, MPP issued the Property Assessment and Classification Review, Final Report. Property taxes are an important part of the tax burden borne by trucking companies. Beaubien found (perhaps contrary to popular opinion) that the trucking industry does not have a property tax advantage over the rail sector. In fact Beaubien found the opposite to be true.
To address this inequity the Beaubien report recommended that Ontario amend O. Reg. 282/98 to include trucking terminal lands in the excess land sub-class, but not the building, which serve a similar function to railyard lands.
Fuel represents the second largest component of cost for motor carriers. For independent owner/operators fuel is the single largest component of cost. Ontario diesel wholesale prices increased 14.3 cents per litre (or 50 per cent) from 28.7 cents per litre on Jan. 1, 2002 to 43 cents per litre on Jan. 1, 2003.
With the rising costs of fuel, and the difficulty the trucking industry has with passing on such cost increases, there must be no thought of increasing the provincial fuel tax rate for trucking.
It is interesting to note that currently truck diesel in Ontario is taxed at a rate of 14.3 cents per litre while railway diesel is taxed at 4.5 cents per litre.
Employment costs are the single largest component of a trucking company’s cost structure. Payroll taxes are job killers. Without any meaningful consultation, a few weeks notice and no meaningful justification be
yond a nebulous explanation that medical costs have gone up and investment returns have deteriorated, the WSIB recently increased trucking assessment rates by six per cent – a $12.5 million payroll tax hike the trucking industry must absorb in 2003. This is despite a reduction in loss-time injuries. Moreover, the WSIB has informed OTA it can expect increases of a similar magnitude in 2004.
Despite all the taxes and fees paid by the trucking industry, there are those who will argue that trucking is subsidized because truckers use roads and highways that are paid for out of tax dollars. This is simply not true. On average, in the last four provincial budgets, the Government of Ontario has invested just under $1 billion per year in highway infrastructure. Each year the Ontario trucking industry pays more than $850 million in provincial fuel taxes and registration fees alone. In other words, on the basis of fuel taxes and registration fees, the trucking industry is paying for about 85 per cent of the provincial highway budget.
The Government of Ontario should follow the lead of most US states and exempt truck tractors used in inter-provincial and/or international commerce from provincial sales tax; or harmonize the provincial sales tax with the federal GST to provide Ontario businesses with input credits and to reduce the burden on trucking companies from administering three distinct sales tax systems.
However, so long as the Ontario trucking industry is saddled with the MJVT and the current application of the provincial fuel tax, the Government of Ontario should provide MJVT credits for the eight per cent PST previously paid on trailer equipment purchased prior to Oct. 1, 2001. Not to do so condones double taxation.
Legislation is required to ensure that if a future reduction in the eight per cent provincial retail sales tax is introduced; the MJVT rates should be reduced accordingly. By changing from the upfront eight per cent PST to the annual MJVT, Ontario trucking companies should not be denied any future sales tax reductions that might occur.
A commitment that should the MJVT tax base be broadened to include intra-Ontario vehicles, the MJVT rate would be reduced in order to ensure revenue neutrality. The provincial government should amend the definition of excess land sub-class in Regulation 282/98 to include trucking terminal lands.
The Province of Ontario taxes diesel fuel higher than any surrounding U.S. State.
The Ontario trucking industry cannot competitively withstand a hike in fuel taxes. Fuel taxes should not be charged for mileage driven on toll highways and municipal roads.
WSIB premiums should be frozen and an immediate investigation be undertaken into the case put forward by the board for the rate increases. An audit of the board’s administrative practices should be conducted in order to identify opportunities for efficiency. n
– David Bradley is president of the Ontario Trucking Association and chief executive officer of the Canadian Trucking Alliance.
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