The Canada Revenue Agency (CRA) says it considers the “actual facts of the working relationship” when determining whether an incorporated worker is operating a personal services business (PSB), but accountants and owner-operators caught up in the agency’s trucking compliance initiative say the reviews they’re seeing tell a different story.
The apparent disconnect comes as trucknews.com continues to hear from incorporated owner-operators concerned they are being swept into CRA’s focused enforcement of PSB rules, even though they own their trucks, pay their own operating expenses and consider themselves independent businesses.
Since trucknews.com first reported on the issue, more than 15 owner-operators have contacted the publication describing similar concerns.
Scott Taylor, vice president of Transport Financial Services, said his firm is dealing with a growing list of files with similar outcomes.
“We’re not saying CRA shouldn’t enforce the rules,” Taylor said. “We’re saying they need to apply the rules they’ve published.”
The latest concerns center on CRA’s own educational material.
In a previous webinar on personal services businesses, the agency explains that self-employed workers generally operate independently, can accept or refuse work, are free to work for multiple payers, and often supply the tools and equipment required to perform the work. It adds that ownership of tools and equipment is “more commonly associated with a business relationship.”
The webinar goes on to state that, when determining whether a corporation is operating as a personal services business, CRA “generally apply similar logic used when determining if an individual is an employee or self employed.”
It also says workers and payers are free to structure their affairs as they choose, provided “whatever status they have chosen is supported by the actual facts of the working relationship.”
Taylor argues those factors are largely absent from the trucking reviews his firm has handled.
He said auditors appear to rely primarily on a five-question screening form that focuses on the relationship between the owner-operator and the carrier, while failing to ask about issues such as truck ownership, capital investment, operating expenses and financial risk.
“We basically had a CRA auditor say she did not care that he owned a truck. She didn’t want to even talk about the $40,000 spent on fuel or the $35,000 spent on repairs.”
“Those are all factors CRA itself says should be considered,” Taylor said.
Taylor said one CRA auditor appeared uninterested in factors that the agency itself has said are relevant in distinguishing an employee from an independent business.
“We basically had a CRA auditor say she did not care that he owned a truck,” Taylor said. “She didn’t want to even talk about the $40,000 spent on fuel or the $35,000 spent on repairs.”
Instead, Taylor said the auditor focused almost exclusively on whether the owner-operator was incorporated, owned the corporation and hauled for a single customer.
According to Taylor, the auditor concluded the review by saying, “I guess the trucking industry is going to have to make some changes.”
CRA previously told trucknews.com that determining whether a corporation is operating as a PSB is a case-by-case exercise based on all relevant facts. The agency said ownership or control of a truck is only one consideration and that all statutory conditions under the Income Tax Act must be met before a corporation is considered a personal services business.
The agency has also confirmed it is conducting a focused compliance initiative involving personal services businesses and reporting fees-for-service transactions in the trucking industry.
Its guidance notes that a corporation may be considered a PSB if the incorporated worker would reasonably be considered an employee of the hiring business were it not for the corporation, the worker is a specified shareholder, the corporation has no more than five full-time employees, and its income is derived primarily from that individual’s services.
Taylor said none of his clients dispute that incorporated company drivers using a carrier’s equipment may properly fall within the PSB rules. In fact, CRA’s webinar uses an example of an incorporated truck driver performing work using the carrier’s trucks as a personal services business.
His concern, he said, is that legitimate owner-operators with substantial investments in their own businesses are receiving the same treatment.
One owner-operator, Zahid Mahmood, said CRA maintained its position after he submitted documentation showing he was responsible for his own business operations.
“During the review, I provided all of the requested documentation, including my lease agreement, service contract with my customer, and any other supporting documents requested,” Mahmood wrote in a comment to trucknews.com. “I also explained that I am responsible for my own operating expenses, including commercial insurance, vehicle registration and plates, safety compliance, maintenance, and all other business-related costs.”
Despite that, Mahmood said he was informed the decision would stand.
“I am a genuine independent owner-operator running my own incorporated business, not an employee or company driver,” he wrote. “This situation has caused me significant stress and uncertainty.”
Taylor urged any owner-operator who receives a reassessment not to ignore it. He recommends filing a formal notice of objection within the prescribed deadline, even if supporting documentation has already been provided during the audit.
Filing an objection generally suspends CRA’s collection action while the case is reviewed by the agency’s Appeals Division, he said. That can prevent immediate collection efforts and stop GST/HST refunds from being applied against the disputed tax debt while the objection is under review.
“The worst thing someone can do is let the deadline pass,” Taylor said. “You can always withdraw an objection later, but if you miss the deadline, your options become much more limited.”
Taylor believes the audits could produce an unintended consequence.
Rather than continue operating through corporations, he said some legitimate owner-operators may decide to dissolve their companies, transfer ownership of their trucks from the corporation to themselves personally, and continue hauling as sole proprietors.
“They’ll simply unincorporate,” Taylor said. “The trucking business continues, but the corporation CRA is scrutinizing disappears.”
Taylor stressed he is not recommending that approach, but believes some owner-operators may conclude it is preferable to prolonged disputes over their corporate status.
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