The Canadian Trucking Alliance is warning truck drivers and carriers that using the so-called Driver Inc employment scheme could ultimately come back to bite them.
The use of Driver Inc. as a recruitment tool is becoming so widespread that without quick intervention by the Government of Canada and provincial worker compensation boards all carriers may soon have to consider adopting the payment system to compete for drivers, says CTA.
The Driver Inc. model is based on commercial vehicle operators, who do not own or operate their own vehicle, becoming incorporated and receiving payment from their carrier with no source deductions. This practice opens the door to the possibility of widespread tax evasion by those engaged in Driver Inc.
“Against the backdrop of a severe driver shortage facing our sector, the Driver Inc. payment system is unfortunately becoming a preferred way to attract contract drivers to fleets. However, CTA believes that contract drivers who are utilizing company vehicles, without any financial risk/responsibility to own/operate the vehicle, contravenes the historical definition of driver-contractor status in our sector,” said Stephen Laskowski, president, CTA. “To now rule against this historic principle, effectively changing the definition, would turn our industry upside down.”
Throughout 2018 CTA has been working with the Canada Revenue Agency (CRA) to clarify their position on Driver Inc as a legal payment system while urging the agency to commit enforcement in this area.
In response, the CRA advised CTA that while it can’t comment on any particular company, it is working with CTA to provide industry additional information about determining whether a driver is an employee, incorporated employee (personal service business – PSB) or an independent contractor as well as tax implications for drivers that fall into each of these categories. CRA also told CTA that ensuring a worker, in this case a driver, is correctly characterised is a very important part of the payer’s job. Income paid to drivers must always be reported, and the law requires that businesses report this income on either a T4 for employees or T4A for contractors.
“Incorporating yourself as a driver, without owning/operating your own truck, has significant labour law and tax implications. Many drivers and companies utilizing this system seem to think Driver Inc is some previously undiscovered tax oasis. It’s not; it’s a mirage.,” explains Laskowski. “The tax filing implications make the Driver Inc. model a very questionable approach to legitimately increasing drivers’ take-home pay. Obviously not declaring your income is a highly illegal method to increasing pay, made easier by the fact that CRA does not always find businesses that don’t issue T4A’s to contractor drivers.”
Consequently, CTA is urgently requesting CRA commence a country-wide enforcement campaign to ensure companies and drivers engaged in the Driver Inc. model are paying their fair share of taxes by filing as a Personal Services Business (PSB) and implement a policy requiring all truck drivers to be issued either a T4 or a T4A in 2018, added Laskowski.
CTA is expecting a policy and enforcement decision from CRA on the issue of Driver Inc, PSB filing implications this fall while seeking an enforcement ruling from Employment and Social Development Canada regarding the labour implications of Driver Inc. CTA is also asking each provincial trucking association to engage their local workers’ compensation boards to ensure Driver Inc drivers and companies are paying their legally required coverage payments.
‘We believe Driver Inc. is costing the Canadian government millions in lost tax revenue from drivers not filing as a PSB or simply not properly reporting their income. If governments do not do something soon to protect the law-abiding, tax paying part of the industry, it could soon add up to billions in lost dollars as the majority of truck drivers will trend towards accepting only one form of payment – Driver Inc,” said Laskowski. ‘The sad reality is in certain parts of the country we are not far off from this scenario. We need clarity, enforcement, and we need it soon.”
As part of its 2018 prebudget submission, CTA is requesting more resources for CRA to dedicate and increase enforcement of Driver Inc in the trucking sector. Specifically, CTA is asking for a massive blitz of drivers and carriers improperly utilizing the Driver Inc model.
“If carriers and drivers are properly paying and filing as a PSB then they should have no worries. Those drivers and companies using the PSB system as a shell game to avoid paying their fair share of taxes should be concerned,” added Laskowski, who warns that potential back taxes and penalties against carriers and drivers who have been improperly filing as a PSB could be significant, notwithstanding additional interventions by ESDC and provincial workers compensation boards”
Drivers or carriers who would like CRA information and explanations on Driver Inc and PSBs – when they’re made available this fall – can e-mail CTA at email@example.com