{"id":3694,"date":"2024-03-22T13:34:40","date_gmt":"2024-03-22T13:34:40","guid":{"rendered":"https:\/\/cantruck.ca\/are-you-driver-inc-pay-attention-youre-being-set-up\/"},"modified":"2025-01-10T16:41:10","modified_gmt":"2025-01-10T16:41:10","slug":"are-you-driver-inc-pay-attention-youre-being-set-up","status":"publish","type":"post","link":"https:\/\/cantruck.ca\/fr\/are-you-driver-inc-pay-attention-youre-being-set-up\/","title":{"rendered":"EDITORIAL: Are You Driver Inc? Pay Attention – You\u2019re Being Set Up\u00a0"},"content":{"rendered":"

By Stephen Laskowski<\/em><\/strong><\/p>\n

Driver Inc. is an emotional issue in our industry \u2013 and for good reason. The non-compliant behaviour based on tax evasion and manipulation of the Labour Code is destroying the competitive landscape of the trucking industry and distorting the supply chain in ways we have never seen. Driver Inc is not a \u2018new\u2019 entrepreneurial strategy to get a competitive edge in trucking; Without a shred of doubt, it\u2019s a systemic scheme based on profiting from skirting legal obligations, including \u2013 but not limited to \u2013 corporate and personal tax evasion, labour misclassification, misrepresentation of fleet registrations, insurance irregularities, under reporting of vehicle use and fuel consumption and, in some cases, forced labour through various abuses of immigration programs.<\/p>\n

Carriers who abide by the law and refuse to participate in Driver Inc. are what the trucking industry needs; it\u2019s what this economy needs, and, frankly, what our society needs if we want to be able to adequately fund our medical and education systems, infrastructure needs and the social institutions we have come to expect as Canadians \u2013 especially with some of the demographic and the socio-economic headwinds we face in the decades ahead.<\/p>\n

Compliant carriers form the backbone of the supply chain \u2013 they are the true entrepreneurs who are surviving despite having all the cards increasingly stacked against them. They should be applauded and supported for their commitment to trucking the right way and supporting Canada\u2019s social fabric rather than looking for every unscrupulous trick to opt out of their responsibilities. Instead of being dismissed as out-of-touch or not entrepreneurial they should be celebrated and emulated for their sustained success as legal,\u00a0and responsible corporate\u00a0citizens.<\/p>\n

It\u2019s an undisputable fact that Driver Inc is illegal under every standard we currently have on the books. Let\u2019s explore that without any of the red herrings that have been floating out there recently. To paraphrase Dragnet\u2019s Joe Friday (under 40s can Google it), I\u2019ll proceed here with \u201cjust the facts.\u201d<\/p>\n

This column will focus on the tax side of the scheme, but it\u2019s important not to forget that the concept of a Personal Services Business (PSB) does not exist from a labour perspective. The Canada Labour Code only has two classifications (1) Employee and (2) Independent Contractor. If you are not a legitimate small business and do not own a truck or make legitimate equipment payments, you are an employee \u2013 end of story.\u00a0Think being incorporated changes things? It doesn\u2019t and\u00a0ESDC is clear in its ruling<\/a>\u00a0on this matter:<\/p>\n

\u201cOf note is that whether or not a worker is incorporated does not factor heavily in a determination of employer-employee status. As such, Personal Service Businesses would not have special status\u2026.in this case we find that an employer-employee relationship exists and that the Code applies.\u201d\u00a0<\/i><\/p>\n

CRA<\/b><\/p>\n

So how does CRA see things? Like ESDC, CRA has (1) Employees and (2) Independent Contractors, but also has another category called Personal Service Businesses (PSB). Like in the Labour Code, Driver Inc. does not qualify as independent contractors for essentially the same reasons (does not pass the independence test). Therefore, if the worker insists on being an incorporated worker, they become a PSB.<\/p>\n

So, what is a PSB then?\u00a0CRA describes PSBs as an entity that provides services to a business that a regular employee usually performs. The person is labelled as an \u2018incorporated employee\u2019 and not a contractor or self-employed individual. So, if you don\u2019t want to be an employee and you don\u2019t qualify as a true independent contractor what does this mean for your taxes now that your company has made you a PSB?<\/p>\n

The combined federal and provincial tax rate applicable to PSBs in Ontario is 44.5%, which in nearly all cases will be higher than the effective tax rate payable by the\u00a0driver on employment income. In addition, you are also not eligible for\u00a0many business deductions available to true independent contractors. Finally, it comes with many added business, legal and tax expenses a normal employee would not have, like special corporate tax filings.\u00a0Combine these facts with all\u00a0<\/span>the\u00a0<\/span>compensation benefits a PSB loses as a non-employee,<\/span>\u00a0and<\/span>\u00a0the truck driver who becomes a PSB\u00a0<\/span>will\u00a0<\/span>see their total compensation package shrink considerably\u00a0<\/span>when compared to<\/span>\u00a0a truck driver who files taxes and receives a compensation package from their company as an employee.\u00a0<\/span><\/p>\n

What does that mean? It means there are zero \u2013 and I mean zero \u2013 tax and compensation reasons why you,\u00a0as a truck driver,\u00a0would want to be a PSB. Unless, that is, it\u2019s your plan or your company\u2019s plan that you will not pay your taxes or take deductions that are not legally available to PSBs. Don\u2019t believe me on the PSB tax implications? Fine. Read\u00a0CRA\u2019s memo\u00a0<\/a>on the subject matter.\u00a0<\/span><\/p>\n

T4A<\/b><\/p>\n

Before 2011 it was mandatory for all businesses to issue a T4A to their contractors to show payments made. In 2011, an enforcement moratorium was put in place. Since then, CRA has been trying to resolve some issues in the business community \u2013 mostly not pertaining to trucking \u2013 around the issuance of T4As. The Canadian Trucking Alliance\u2019s position is to bring back the T4A system, or something similar, just for trucking. Those who would object to this likely do so only for nefarious reasons.<\/p>\n

Under a mandatory system with the enforcement moratorium lifted, under a CRA audit, if a carrier does not issue a T4A to a contractor, and CRA cannot track down the contractor, the carrier is now on the hook for those contractor\u2019s taxes. The CRA will get what\u2019s owed one way or the other. Why is this important\u00a0to the Driver Inc matter? Well, it means carriers can no longer wash their hands of tax obligations\u00a0and if they start issuing T4As, you can be sure some of their drivers will walk to the next Driver Inc carrier. I understand that is the legal conundrum of T4As and Driver Inc. But to that I say\u00a0\u2013\u00a0well, welcome to the club of trying to operate and manage a legal business.<\/p>\n

CRA & The Corporate Veil<\/b><\/p>\n

Some say the T4A is the key to escaping corporate responsibility as the CRA will not pierce the corporate veil between two separate businesses. This is an important point of law that CTA supports. However, CTA also supports the application of law when a criminal conspiracy exists to circumvent the law by arranging a corporate system explicitly designed to create labour misclassification and\u00a0tax evasion (not tax avoidance). This is an interesting scenario for some in the Driver Inc. community if CRA decides there is enough evidence where the corporate veil protection no longer applies. Interestingly, if accountants or other similar professionals (within a company or not) are found to be aiding or organizing this activity, they can personally be held responsible as well.<\/p>\n

Enforcement<\/b><\/p>\n

When the CRA comes to see you and they find problems, they \u2013 as the saying goes \u2013 are like guests that won\u2019t leave. The penalties depend on a variety of factors (if you are\u00a0not paying at all; or just improperly claiming deductions, and how long you have been doing this) but it\u2019s safe to say this will hurt if you are caught. Whether it\u2019s the company itself, a tax or legal professional who convinced you to do this, or you, as the driver \u2013 someone will eventually take the fall. And if people are telling you that this is OK; or that there\u2019s some \u2018grey area\u2019 or \u2018don\u2019t worry, you won\u2019t ever get caught\u2019 \u2013 well, chances\u00a0are\u00a0you\u2019re\u00a0looking at the \u2018fall guy\u2019 in the mirror.<\/p>\n

While each situation may be different, these are the potential consequences according to CRA:<\/p>\n