During my time at Truckers News I have nearly always written about the tax savings using subsistence allowance (aka per-diem, meal allowance). I have received numerous responses from operators, accountants and auditors coast to coast, the vast majority providing interest and enthusiastic support. Most of those who have contacted me understand the issues and application with minimal clarification (or at least they come across that way). However, in the last three months I have been in contact with individuals who obviously have been given half or less than half the information. In fact, it is so obviously deficient I believe the situation is somewhat critical.
In my industry analyst blog “Canada Truck Operators” (http://thrconsulting.blogspot.com/) I have repeatedly come out in deep opposition to accountants who apply a lazy or non existent set of rules for compliance. I have seen everything from per-diem applied on a rate per mile to it being lumped together in one year end journal entry.
If you are concerned about your accountant doing it right here is a litmus test to rate your compliance. There are three qualifications to collect non taxable meal allowance: you must be an employee, the employee must have an employer-employee agreement and there must be an audit trail to support the agreement. Ask yourself these questions:
- Did your personal income tax return show T4 income from your corporation and did your corporation remit regular source deduction checks to the government during 2008?
- Did you regularly (monthly) receive a separate check from your corporation for meal allowance (which corresponds to your log book)?
If your answer to one or both of these questions was no, you may be in trouble. Unfortunately, the accountant probably got you to sign a waver. That means that if audited you stand alone against the penalties and interest… and they WILL be substantial. I have advised many operators, if you don’t do it right, don’t do it at all!
The only reason I’m so adamant about compliance is what non-compliance does to the entire lease/owner operator industry. Picture in your mind what will happen in a few years time. Someone who was under the impression he was using meal allowance gets audited (and it WILL happen). There is no adequate audit trail to support the system and the auditor disallows both the meal allowance expenses and assigns penalties and interest to taxable income. With an average reversal of $7000 per year, the operator has their financial guts handed to them. The accountant doesn’t have to pay because of a signed waver. Almost immediately the talk on the CB will be “meal allowance is a sham”. Fear, anger and panic bounces from coast to coast. Dis-information costs the trucking industry millions of dollars in potential tax savings.
If your accountant is not willing to prepare your personal and corporate returns without a waver either do the research yourself (self-ensure), find someone who will stand up for their work, or remain self-employed and keep your meal receipts. It would be irresponsible of me to advise otherwise. It’s not BAD news, its just accurate news.