A tax specialist who represents owner-operators says Canada Revenue Agency (CRA) may be incorrectly classifying legitimate trucking owner-operators as personal service businesses (PSBs), potentially exposing them to massive tax bills despite owning their own equipment and paying their own expenses.
Scott Taylor, president of Transport Financial Services, said his firm is currently handling six CRA reviews involving incorporated owner-operators who own their own trucks but are being scrutinized because they haul exclusively for a single carrier.
One Ontario owner-operator recently received a reassessment that disallowed fuel, repair and other operating expenses, resulting in an additional tax bill of about $130,000, Taylor said. CRA determined he was a PSB solely based on the fact he hauls for only one carrier — something that’s not at all uncommon for legitimate owner-ops.
“He owns his own truck. There’s no lease, no financing. His name is on the bill of sale. He works for a well-established carrier in Ontario, and this is just wrong,” Taylor told trucknews.com.
According to Taylor, the owner-operator provided all the documentation requested by CRA, including records demonstrating ownership of the truck and operating expenses. He said the reassessment arrived without any explanation or opportunity to respond.
Taylor believes CRA auditors are placing too much emphasis on the fact that many owner-operators work for only one carrier at a time.
“That’s the way this whole relationship works,” he said. “You need the carrier’s insurance, their operating authority, their permits and everything else to go up and down the road.”
While working exclusively for one carrier can be a factor CRA considers when determining whether a corporation is a personal service business, Taylor argues it should not outweigh other indicators of an independent business.
“You can leave whenever you want. You can hire another driver to operate your truck. You own the equipment. You have the risk of profit. You pay for the repairs and the fuel,” he said. “They don’t seem to be caring about that right now.”
Taylor said the six files his firm is dealing with involve different CRA offices, leading him to believe the reviews may be part of a broader enforcement initiative.
“If we’ve got six, there has to be more,” he said.
The concern comes as CRA continues efforts to crack down on arrangements where drivers incorporate primarily to receive tax advantages while functioning as employees and operating company-owned trucks. Those arrangements, commonly referred to as Driver Inc., have been the focus of growing enforcement efforts across the trucking industry.
Taylor stressed he supports CRA’s efforts to identify illegitimate arrangements but worries legitimate owner-operators are now being caught in the process.
“We’re happy to see they’re trying,” he said. “But they’re trying with the wrong information.”
His firm plans to file notices of objection on behalf of affected clients and is also raising the issue with industry associations.
Taylor believes trucking organizations need to explain to CRA how the owner-operator model functions in practice.
“These agents are armed and dangerous and not getting it,” he said. “They’ve obviously been given a directive, but the questions they’re asking and the way they’re interpretating the answers don’t reflect how legitimate trucking works.”
Transport Financial Services is encouraging other owner-operators who have received similar reassessments to come forward.
Trucknews.com asked CRA how it determines whether an individual is a legitimate owner-operator or PSB. It has yet to receive a response.
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