Inside Logistics

Learning Curve: Coming in the from the cold

How to leave the Driver Inc. model behind


December 20, 2019
by

Tracy Clayson is director of client development at
In Transit / CPC Logistics Canada. t.clayson@callcpccanada.com

In October 2018, both the Canada Revenue Agency (CRA) and Employment and Social Development (ESDC) made it clear they see drivers who incorporate themselves – but use someone else’s company-owned vehicles and then don’t
pay payroll and other taxes – as tax manipulators.

There’s been a fury over unfair practices like these in our industry – the Driver Inc. problem – for years now. What’s new is there are now clear signs the federal government could be ready to turn up the heat on the offenders.

A November 5, 2019 article by Julius Melnitzer in the Financial Post says the CRA got a Federal Court order in July that forced Home Depot to release the identities of its commercial customers and their total spending between January 1, 2013 and December 2016, at all Canadian locations. Obviously, many contractors who deal only in cash have been positioned right in the crossre.

In the article, entitled “Contractors buying from Home Depot, other retailers beware the CRA is coming after you,” David Rotfleisch, a tax lawyer from Toronto’s Rotfleisch & Samulovitch Professional Corporation, called the CRA’s move “clever out-of-the-box thinking” and said it is a “sensible approach that deals with a huge problem in the economy.”

It is huge. A CRA report released near the end of 2018 shows that the Canadian underground economy (any economic activity that is partially or entirely hidden from governments in order to evade paying taxes or government reporting obligations) totalled $51.6 billion in 2016, or 2.5 percent of gross domestic product.

So, it stands to reason that the trucking industry, and individuals and corporations using the Driver Inc. model, are hearing cautionary tales like the one about Home Depot’s commercial customers and thinking it is time to legitimize.

Many trucking companies are realizing that to determine where the individual offenders are, the CRA will likely have to, at minimum, conrm facts with them too. Trucking companies using Driver Inc. will need to answer a lot of unwelcome questions. For example:

  • Who owns the trucks?
  • Are payroll deductions coming off the
    driver’s pay at the source?
  • If not, who is paying the income tax?
  • Who’s paying CPP?
  • What about EI?
  • Why are you failing to report and remit WSIB premiums (a form of payroll tax
    evasion)?

Fleet managers who cannot answer these questions are going to be caught and will be subject to both severe nancial punishments and public embarrassment. This is not an attractive option. They are seeing just how badly they need a safe and legal way forward.

Similarly, those drivers who have been interpreting the independent contractor rules to their advantage are learning they need to chart a course toward compliance right away. But how?

Well, there are companies following the rules. To spot them, look for those members of the Canadian Trucking Alliance who have come forward to lobby the provincial and federal agencies.

Look for those making a public outcry at the highest level, like Alan Bedard, Chairman of TFI, an almost-$4 billion trucking rm, who described the pervasive practice of Driver Inc. as a “cancer” in the freight industry. His actions have been a wake-up call, and clear indication to the CRA that there are titans of industry who support a clean-up.

Pay attention to the town hall participants, conference presenters, mainstream media. Heed the legal and accounting rms’ warnings saying trouble is on the horizon, in the form of a crackdown.

Above all, get your search underway today for trucking companies, driver stafng service providers, shippers and customers who are not involved with the illegal Driver Inc. model – and do your business with them.

You’ll recognize them as the law-abiding corporate citizens setting a good example, dealing with harsh nancial challenges caused by competitors who are using Driver Inc. – yet still committed to following the rules. They are also the only ones with the truly sustainable pricing models, because they’re not about to be exposed for breaking the law.

It’s time to come in from the cold.