Proactive Tax Planning
Operators across Canada have just paid their taxes, about to pay their taxes or are preparing to start making payments. Just because they signed the forms and sent off a check (or checks) doesn’t mean that operators shouldn’t be thinking and planning their taxes year round, at least in some form.
Taxes are no more a once a year expense than fuel costs are once a paycheck expense. When a driver takes off from a stop, burying the turbo gauge as he grinds through the gears he is making a conscious choice about his fuel costs. His cumulative choices have direct consequences on payday. The attitude the driver has about fuel costs in the hour his check is deposited is just not relevant. What is important is his collective attitude and system over the entire pay period!
Operators all across Canada are analyzing fuel consumption and measuring its impact over a period of time. They are measuring and tweaking every fuel assumption: weight, RPM’s, fuel companies, routes, tire size as well as a host of other previously unquestioned notions. Good operators live this out daily.
Dealing with taxes is no different. Contrary to popular assumptions operators are not “stuck” with their taxes each year. Their habits, attitude and system throughout the year determine their tax bill on April 30th. Revisiting the historic assumption that operators should be self employed is now the ongoing frenzy.
To evaluate assumptions we must review the history of how we got here. Twenty five to thirty five years ago almost all truck drivers were company employees. Canada Revenue Agency (CRA or CCRA at the time) dumped all transport employees into the TL2 system. However, operators were neither “trucking companies”, nor an employee, and had minimal liability, so the obvious (and simplest) system was self-employed. As operators slowly came into existence CRA “patch quilted” their system allowing the self-employed operators to use the TL2’s, they continued teaching it to the industry up until a couple years ago.
That format fit the industry 25 years ago but now the advantages have virtually disappeared. Competition is so fierce and margins are so narrow operators must drive smarter not harder, they must rethink what they do or risk extinction.
The first consideration I ever gave to incorporation was “business use of personal vehicle” (2002 if memory serves). When the tax court ruled that businesses can assign “non-taxable benefit” to vehicle expenses I considered both its financial benefit and ease. No more need for keeping fuel, maintenance, interest, and insurance receipts while getting a respectable reimbursement for job related costs. But, after consideration of annual and setup costs it didn’t make financial sense. Truckers simply did not use their personal vehicles enough. I put the idea aside.
Then the pressure started mounting as CRA first re-assessed TL2 claims above guidelines (an act contradicting the Don Wilkinson case), then disallowed all TL2 usage cart blank. The squeeze was on. Truckers started grabbing meal receipts every chance they got and grumbling about their mountain of paper. The accounting industry was “deer in the headlights” with disinformation eclipsing information.
When I first heard of subsistence allowance I dove into the research for my client’s sake. I immediately saw both the simplicity and huge tax savings with national implications. It was as if subsistence allowance was “taylor made” to the trucking industry. Federal log books determine
travel status and employee agreements written for niche markets. The non-taxable benefits and simplicity are… incredible.
What I didn’t see immediately was that each individual operator usually needed to be walked through the change of structure step by step. Even after my book was published I found that most operators were excited yet shied away from a totally new tax plan. I don’t blame the average operator for being intimidated . Change is not natural. People find comfort and security in the masses. The VAST majority of operators are still self- employed.
Most operators go to their local accountant, the same accountant who services many industries such as chiropractors, convenience stores, and construction contractors. Accountants coast to coast have very similar responses. They are not interested in walking the drivers through any new system. It can take up to six months for some operators to feel totally comfortable. I wouldn’t take offense at their responses, the monthly monitoring and training are something most firms are just not staffed to do.
To further complicate firms, CRA has busied itself in stepping up audits to operators and firms are starting to feel overwhelmed by the industry heat. Operators only usually represent 5 to 15% of the average accountant’s clientele and may cause higher levels of complexity and audits than other clients. The accounting industry is going through far reaching changes as legislative requirements (brought on by accounting scandals) are squeezing firms. The bottom line is operators are being neglected and misinformed at many firms.
This should not stop drivers from researching their options. If operators could be guaranteed a five hundred dollar a month savings in fuel I’d bet there would be a lineup somewhere. Information and careful planning is what will keep the operators successful. The benefits of changing your tax plan dose not come immediately but guaranteed it will be felt April 30, 2009. Stop reacting to your tax bill and start acting proactively. Think ahead, find the issues, and talk to someone who uses subsistence. If you can’t find one call our office.
The difference in “systems” is usually thousands of dollars per year (average $4-8000). The book “Making Your Miles Count” exposes these two extremely different methods that produce two extremely different results. It may be the best business book you ever buy.