CRA & ESDC Clarify Status of Driver Inc & Enforcement to Trucking Industry
The Canada Revenue Agency (CRA) and Employment and Social Development Canada (ESDC) have clarified how they will treat the practice of so-called Driver Inc. by removing any grey area as it relates to the tax and labour status of incorporated drivers operating company vehicles.
The Driver Inc. model is based on commercial vehicle drivers, who d onot own/lease or operate their own vehicle, becoming incorporated and receiving payment from their carrier with no source deductions. This practice opens the door to the possiblitiy of widespread tax manipulation by those engaged in Driver Inc.
In documentation provided to CTA and now published on the agency's website, CRA explains that while it cannot legally deny any Canadian's right to incorporate, there are limits in circumstances involving Driver Inc. If, then, 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 - that person is deemed a Personal Service Business (PSB).
CRA explained to the CTA Board the following facts regarding the 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).
- PSB 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.
Click here for the full CRA documentation clarifying the agency's position and enforcement policy.
Consequently, the CRA states 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 is in line with measures already in effect and consistent with how the agency treats all other sectors of the economy, like construction workers.
Read the full article on the Canadian Trucking Alliance website by clicking here.