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Are you ready to file properly as an incorporated driver and/or issue T4As?
CRA has clarified that incorporated company drivers are Personal Services Businesses (PSBs) and not eligible for any small business deductions. Trucking ownership must now issue T4As to all self-employed contractors. There are also several additional labour requirements and implications from ESDC under the Canada Labour Code and provincial labour laws. Are you ready to comply? Now is the time to get educated. See below for more information as well as the attached documents from CRA and ESDC.
Tax Implications
Many individuals will incorporate for legitimate business purposes. However, this does not mean that all incorporated truck drivers are owner-operators or small businesses. If you are an incorporated driver – sometimes referred to as ‘Driver Inc.’ – it is very important you understand the ramifications.
An example of a potential Driver Inc/ PSB driver: a commercial vehicle driver who incorporates but does not own/lease or operate their own vehicle and receives payment from a carrier without the proper source deductions.
According to CRA, what the industry calls ‘Driver Inc’ in the tax world is known as a Personal Services Business (PSB).
In documentation provided to CTA, and now published on the Agency’s website, CRA explains that while it is legal for Canadians to incorporate, they must understand what this entails and follow the proper filing procedures.
If an individual incorporates but has labour characteristics virtually indistinguishable from an employee – for example, working exclusively for one employer or not owning/having registered any equipment assets – you will be deemed a PSB and will need to file with the CRA as such.
Tax Treatment of PSBs:
- PSBs are not entitled to income tax deductions available to other corporations (e.g., the small business deduction and the general rate reduction).
- PSBs cannot deduct most expenses available to other corporations (e.g., office supplies, meals, cell phone, etc.).
- PSBs are subject to a combined federal and provincial tax rate of 33%.
- Amounts paid by one business for services provided by another business must be reported to the CRA but are not subject to statutory payroll deductions.
- If the corporation pays salary and wages to one or more employees, these amounts will be subject to withholding of income tax, CPP and, in some cases, EI.
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Important Note for Companies and Drivers
CRA has stated that beginning tax year 2018, all payments made to self-employed individuals deemed to be PSBs, like incorporated drivers and owner-operators, must be reported on a T4A slip – Statement of Pension, Retirement, Annuity and Other Income. This means companies will need to provide all drivers with either a T4 or TA4 for tax year 2018. This is consistent with how the agency treats all other sectors of the economy, like construction workers. See attached CRA enforcement document for more information.
Enforcement Has Commenced
CRA has emphasised to our industry that it is committed to protecting the fairness and integrity of Canada’s tax system and it takes tax evasion (under-reporting income or claiming ineligible expenses) very seriously. Drivers and companies not meeting their tax obligations run the risk of strict enforcement by the CRA. Realtek driver download for windows.
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Note: nothing has changed for regular employees or true owner-operators. These changes affect Personal Service Businesses (Driver Inc. drivers).
Click here to view the full CRA guidance memo.
Labour Implications
In a letter to CTA, ESDC has also reinforced its position on incorporated drivers (Driver Inc. drivers), echoing its long-established guidelines on how ESDC determines owner-operator status.
Consequently, incorporated drivers operating company vehicles are entitled to the same treatment under the law with regards to overtime payments, vacation pay, and severance.
ESDC responded with a memo stating that incorporation does not, in fact, factor heavily in a determination of employer-employee status and as such, “Personal Service Business(es) would not have a special status under the labour code.”
CTA provided ESDC with a scenario of a classic Driver Inc model – in which an incorporated driver is operating company equipment – and under these circumstances, ESDC determined that the “employer-employee relationship exists and that the (Labour) Code applies.”
Employers – If you are employing Driver Inc. drivers that would be considered employees by ESDC under the Labour Code, those drivers are entitled to all the protections afforded to them by the Code.
Drivers – If you are an incorporated driver (Driver Inc. driver), you are entitled to provisions under the labour code including, vacation and overtime pay (among other entitlements and protections). If you are concerned your company is not living up to its obligations, you should consult ESDC.
Click here to see the full ESDC memo.
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Last updated February 13, 2018.