One of the most hotly disputed topics in trucking related tax is meal expenses. Talking to operators across Canada you will get a variety of different opinions. Some say you must keep all your meal receipts and others claim you don’t have to. Each opinion is usually passionately defended… and equally opposed. Let’s go through some facts and a little history.
For decades Canada Revenue Agency has allowed operators to use the TL2. The TL2 is the form the “simplified method” has been recorded on. The simplified method uses a flat rate multiplied by the number of days on the road ($33, $45 and now $51). It is the most popular method used to calculate meal expenses. At the end of the year, if your accountant asked for your log book or number of days on the road you are probably using it.
In October 2006 just prior to the “lunch bag let down campaign” CRA issued Income Tax Information Circular IC73-21R9 which emphasized that both the employer and employee must sign the TL2. Most operators do not or never will have an employer (since an estimated 80-90% are self employed). Under even a moderate audit the simplified method will be rejected. However, less than 10% of operators will be audited and in some districts auditors either don’t care or don’t keep up with circulars. Therefore, many operators wrongfully assume they are complying with the guidelines and not carrying any risk or liability. Practically speaking they are only “free and clear” after the second, fourth or seventh year (depending on auditor’s perception).
However, even if the operators are getting away with using the $51 per day they must understand their 2009 after tax benefit was only $11.63 (2010 is $12.47). That’s not even enough to pay for one dinner! If an operator truly desires to follow the tax rules they must now keep all their meal receipts and then the receipts will still be subject to the same formula (about 24.45%) as was the $51. That means one day’s receipts of $30 will only be an after tax benefit of about $7.34.
Therefore, self-employed operators who follow the rules for meals are now paying more in taxes than ever before. One percentage may have gone up but the number you can use went down. It’s a fancy little “kick in the pants”.
I have a suggestion, follow the tax laws but use a different system! Use the per-diem/subsistence allowance system. April 1st 2010 the after tax benefit was $84.50 per day (677% difference if you saved $51 per day of receipts). It requires a whole different structure and a much closer relationship with your accountant but saves thousands of dollars per year ($6000-$8000+ on average) and you don’t have to save any receipts.
However, the average operator takes 2-6 months to get used to the system. It may not be for everyone, but to the serious business minded operators it’s actually less work and better bottom line.