It’s Your Money, Your Business, Your Life!

The Driver Inc. issue is a responsibility born from individual drivers making individual decisions. Even though a significant amount of the Ontario driver market has subscribed to the practice, it appears that most of the other provinces do not see much of it. However, since the CTA continues to present it as a “national” issue, many carriers and drivers believe it to be so.

Choosing the path of incorporation rather than T4 requires a very deliberate commitment. Managing a corporation rather than an after-tax paycheck is a conscious choice to complicate your finances. A choice such as that assumes that someone convinced them that the added costs and inconvenience is worth it. However, I fear that advice was not given with full disclosure.

The biggest disadvantage (among many) is carrying liability. When two corporations (the trucking company and the incorporated driver) have a disagreement, it is categorized as a civil dispute and would not be under the protection of a labor board (so it would have to be settled in court). With the driver being incorporated, the employer portion of costs becomes the liability of the driver, not the carrier. If/when CRA audits and reverses any business “expenses” from the “business” (classifying the business as a Personal Service Business), any tax advantage disappears also.

The great thing about Canada is the individual freedoms we live with. We have opportunities to live our lives with any orientation we so desire. This freedom is not without responsibility. Every choice we make has natural restrictive consequences. We cannot take the advantages of one orientation and neglect to acknowledge/embrace its natural disadvantage. In business terms it’s called opportunity costs. Choosing one opportunity means that a different opportunity with its inherent advantages was rejected which also applies with our income tax systems. When we choose to be incorporated, we are forced to abide by the rules of the incorporated system. The difficulty with the Driver Inc. situation is that many participants who set up a corporation were not informed of all the rules associated with such a choice. The participants were ill informed. Whatever benefits they thought they were getting may very well have been presented in error.

Being that our freedoms allow us to choose independently, we must accept that it is our personal responsibility for the outcomes. The only exception is when those who have given this advice, have done so in error or in fraud. Would the party who convinced a driver to incorporate now bear the costs associated with that choice? My guess is probably not. My opinion about the growth of Driver Inc. is that those who advised drivers to do so will not take responsibility for its ultimate costs.

So, if you find yourself in this situation (as a Driver Inc.), I advise you to find the proper advice from an appropriate individual. In business (even the tax business) it is often essential to get your advice from a trained expert or professional who has appropriate insurance. In other words, do not take advice from someone who has nothing to lose by being wrong. Make sure your liability is covered.

Allow me to give you my opinion on what will be happening in the future. For the short term, few (if any) Driver Inc’s will be audited (the industry is still in the “notification” mode). However, sometime after a short period of time, a group of Driver Inc.’s will be audited in mass (anywhere from 25 to maybe 100 at most). Once the results of these audits are published, the door is officially open for independent CRA auditors to descend on the industry in a random wave. This same pattern occurred in March 2007 when CRA applied the IC73-21R9 rule to 25 trucks from Moncton N.B. Within six months accountants from across Canada were telling their operators to save meal receipts rather than use the TL2 simplified method (which was successfully used for well over 20 years at the time). Over the next decade the industry settled down into a new “normal” of compliance with this issue. I believe this will also be the future of Driver Inc.

What to do now? I strongly advise that if you are using Driver Inc. that you dissolve your corporation immediately. Begin working for a T4 income and pray your dissolved corporation will not be audited. I can assure you that there will be some individuals who will not get audited and who will continue to be “uncaught” for some time (or maybe even indefinitely) but they will be rare. And, it would be very presumptuous of you to plan that you would be one of them.

In 2007 I wrote: “Making Your Miles Count: taxes, taxes, taxes”; the industry’s only tax book that deals with all the independent operator’s tax issues. I humbly advise you to take my advice. I have nothing to gain by your choice. My advice in 2007 was for operators to incorporate and use NTB. The application for drivers to incorporate is beyond the scope of my advice.

If you have trouble converting your carrier to provide you T4 earnings, I suggest finding another carrier to work for. It’s your career, it’s your money, it’s your future. That is the beauty of our country; we can vote with our free market feet.

About the Author:
Robert D. Scheper is a leading Accountant and Consultant to the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His firm exclusively serves Lease/Owner Operators across Canada. His second book “Choosing a Trucking company” is the most in-depth analysis of the operator industry available today. He has a Master degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.

You can find him and his books at www.makingyourmilescount.com or 1-877-987-9787. You can also e-mail him at robert@thrconsulting.ca.