One of the benefits of writing a tax book to truck drivers is the response I get from people coast to coast. I have had wonderful discussions with accountants and drivers from all across Canada.
I also know that accountants are busy adjusting to new regulations (thanks to Enron etc) as well as preparing for IFRS (International Financial Reporting Standards) which are due January 1, 2011. It is a very unsettling time for the consistency driven accounting industry.
Unfortunately, busy accountants leave too many drivers alone when dealing with the qualification and application of meal allowance (per-diem, subsistence allowance). Too many operators are left holding potential liability or misunderstanding the benefits.
I had one individual tell me of a friend who usually paid between $20-25,000 in taxes every year, but last year he incorporated and only paid $4000. The implication was that incorporation saved him $16-21,000. Let me say upfront, there is something very wrong with his numbers!
The National Joint Council lists Canadian Meal Allowance as $84.50 effective April 1, 2010(http://www.tbs-sct.gc.ca/pubs_pol/hrpubs/tbm_113/c-eng.asp). Using an exchange rate of 125% (which is way above the annual average) only puts his US daily travel allowance at $105. If incorporating saved him $16-21,000 it would represent a tax deduction of $131.51-172.60 per day providing he drove 365 days in the year. If he drove the national average of 22 days per month it represents a tax deduction of $181.82-238.64 per day. Therefore, it is impossible for his numbers to match his understanding. Accountants must make this clear.
In my experience the bottom line tax savings of incorporating (with per-diem, subsistence allowance application) ranges only from $6-9,000 per year. His $16-21,000 drop reflects something else. My guess has to do with WHEN he changed his business status. I assume he incorporated somewhere between May-July. That means that his “self-employed earnings” represents only half of his annual income. The rest of his income is reported in his corporation (assuming no T4’s). If this guess is correct I hope he hasn’t spent the $8-15,000 pending taxes.
Subsistence/Per diem does bring dramatic tax savings if reported correctly ($6000-9000 annually). In fact if every lease/owner operator in Canada used the system, it would collectively save $150-280 million dollars per year in taxes (assuming all the 25-35,000 operators are still in existence). However, existence is not what determines qualification… compliance does!
Here is the national problem as I see it:
- Too many accountants refuse to research the system and train operators accordingly
- Without adequate training, qualifying (for an operator) means “surviving a meal allowance audit”. When accountants require operators to sign liability wavers the operator is left holding all the risk and defense, a daunting task to go alone undocumented and untrained.
- Industry dis-information has scared potential users from even considering a change from self-employed status
- Too many operators refuse to arrange their financial transactions to satisfy the required employer-employee agreement audit trail. Simply put, many refuse to be trained. They are either arrogant or lazy!
Many operators suffer needlessly, yet suffer they will. The “Billy big riggers” flying by the seat of their pants from one layover to the next, need to stop being lease/owner operators or start being business minded. .