Meal expenses seem to be the most controversial portion of operator’s income taxes. It represents a significant opportunity for fending off or escalating taxes. Classifying this cost/expense is sometimes instrumental to survival or being gunned down by the taxman. As in Clint Eastwood’s classic movie there is: the good, the bad and the ugly!
Most designated accountants have informed their self employed clients they must use actual meal receipts as expenses. On average, a driver retains only $20-30 per day in receipts. In the income tax form the $30 is converted to a nonrefundable tax credit of only $6.36 per day… bad.
However, a large number of non-designated “book-keepers” still use the drivers log book and its corresponding TL2 guideline of $51. At $51 the nonrefundable tax credit works out to $10.80 per day (better). But calculating the risk of loosing EVERYTHING in an audit? UGLY!
Then there appears to be several ways accountants have dealt with the operators initiating the incorporation method. Some “book-keepers” have claimed all the income and expenses through the corporation (meal receipts included) but then classified the shareholder/operator as a subcontractor, having the corporation claiming no income and the operator claiming self-employed “commissions” as taxable income. This method is wrong on several levels and provides absolutely NO VALUE to the operator… ugly on many levels!
There is another method that many designated accountants have seemed to gravitate to, incorporation and the use of the TL2. For those operators who refuse to collect meal receipts some accountants have correctly classified them as employees and issued T4’s from their corporation clearing out all income to the president/vice president/driver. Then, using the log books and the TL2 completed the driver’s income tax claiming the $51 per day ($10.80 non-refundable tax credit). This system is the most conservative and provides the best alternative to the above options…. Good.
However, there is one final system that provides the most beneficial tax option the trucking industry has seen in several decades, though slightly more complicated. It is incorporation with an employer-employee agreement using per diem (subsistence allowance). The driver receives a monthly salary and a separate per diem check for meals in travel status. The accountant issues a T4 to the driver at the end of the year (per diem not included, its classified as a non-taxable benefit). Personal income tax is filled out WITHOUT the TL2 (since re-imbursement was already made). Depending on the “reasonable” per-diem agreed upon between the president and the driver (suggest treasury board figures of $83.25 per day April 1st 2009) the reclassification of income to a non-taxable benefit can represent a significant annual tax savings ($6-8000+ over the “bad”)… fantastic.
As Clint Eastwood stated “You see there are two kinds of people in this world my friend, those with loaded guns and those who dig!”