Operators Income Tax and Risk Dilemma
I was doing a seminar the other day and was going over the history of Lease/Owner Operator meal expense options. It mirrors last month’s article about dis-information but with an added realization.
Let me first simplify it by saying this. If you did not keep your meal receipts and you did not receive a separate monthly check for your meal expenses from your corporation you are using some form of the TL2 simplified method. The simplified method (as applied to meals) uses the number of days away to estimate your meal expenses (usually using your log books as the primary reference). Now let’s get a little more detail.
Prior to October 2006 operators were allowed to use the TL2 simplified method and provided operators a net after tax benefit of $8.31 (2006). However, because of CRA’s Information Circular IC73-21R9 (where the emphasis was “both employers and employee’s must sign”) self-employed operators could not legally use the TL2. Operators have no employers and therefore nobody to sign the form. They must therefore keep every meal receipt!
The formula used to convert receipts to an after tax benefit is the same formula the TL2 uses. Therefore in order to keep up with the rest of the industry, operators must have receipts of $51.00 per day. If they only eat $30.00 per day they will only receive an after tax benefit of $7.33 in 2010 or $8.00 in 2011+ (that’s less than the 2006 TL2 amount). An operator must realize the lunch bag letdown campaign did not apply to their business. In fact as T4 drivers got a tax DECREASE on March 17, 2007 operators (nationally, because of the October 2006 requirement for receipts) actually got their taxes INCREASED.
This situation is true no matter who your accountant/bookkeeper is. Self employed operators who are still NOT collecting receipts are ill-informed about their tax liabilities. Either their tax preparer is getting them to sign a waver or the preparer isn’t legally responsible for the results anyway. Either way the operator is running the tax gauntlet, hoping they are never audited by someone who applies IC73-21R9. Either an operator is paying higher taxes or they are unknowingly absorbing tax liability risks. It’s a dark tax time for many operators.
The answer, of course, is both reducing your taxes and liability. The only way to kill these two birds with one stone is changing the entire system the operator is using. The per-diem, subsistence or meal allowance system is the simplest of answers. It provides the greatest tax savings and should provide the best source of security as well.
Operators take note. Be careful who applies the system. Make sure they know how to qualify and how to continue to qualify. It will require the operators regular input but the annual tax savings usually range between $6-8,000+.
