Trucks wait to refuel in Calgary in 2024. In its annual budget, the federal government has pledged $77-million over four years to curb tax avoidance among trucking companies.Jeff McIntosh/The Canadian Press
Trucking companies that falsely classify their drivers as self-employed to save on payroll costs will face closer scrutiny from tax authorities, as Ottawa pledges $77-million over four years to curb tax avoidance in the sector.
Tuesday’s federal budget takes aim at a scheme known as “Driver Inc.” in the trucking industry. The business model sees companies lighten their tax burden by treating drivers as independent contractors rather than employees, even when drivers do not own their own trucks and have little control over their working conditions.
In a statement issued ahead of Tuesday’s budget, the Finance Ministry said the practice was undercutting fair competition and depriving workers of benefits and pensions.
Industry groups and labour advocates have long called on Ottawa to tackle driver misclassification. The budget addresses one key demand of the Canadian Trucking Alliance by devoting $19.2-million in annual funding for the Canada Revenue Agency to reinstate penalties against trucking companies that fail to report “fees for service” transactions.
In the trucking sector, these transactions involve fees paid to drivers who have self-incorporated – but in some cases, do not meet the legal definition of someone who is self-employed.
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In 2011, Ottawa placed a moratorium on penalizing the failure to report fees for services, with the intention of cutting red tape for small businesses.
But the move resulted in weak oversight in the trucking industry, where a growing number of companies began encouraging drivers to operate as contractors to evade payroll contributions, according to a recent submission by the CTA to the federal government’s transport committee.
In the trucking sector, “fees for service” transactions involve fees paid to drivers who have self-incorporated – but in some cases do not meet the legal definition of someone who is self-employed.HYUNGWON KANG/Reuters
Drivers are sometimes forced to self-incorporate as a condition of employment, the submission says. Others are told that they will take home more money if they agree to operate as contractors. However, that benefit is often “short-lived or illusory,” as the arrangement strips drivers of a host of labour protections, the CTA submission says.
Lifting the moratorium on penalties “finally gives owners and drivers who obey the law and follow the tax code hope that their businesses and jobs will survive against the surge of carriers who operate within the underground economy,” said CTA president and CEO Stephen Laskowski.
Tuesday’s budget also promises to create an information sharing agreement that will allow the CRA to share taxpayer information with Employment and Social Development Canada, which is responsible for enforcing labour standards in cross-country trucking.
It is illegal under federal labour law to deliberately misclassify employees as contractors. Labour groups are concerned too little is being done to enforce these rules.
“Given the persistently high rate of violations in the trucking sector, effective penalties and deterrence are needed immediately,” says a letter sent last year to senior federal labour officials from advocacy group Justice for Truck Drivers.
Speaking to the transport committee last week, Jobs Minister Patty Hajdu said ESDC will look to increase penalties and soon launch a misclassification inspection blitz in the Greater Toronto and Hamilton area.
Mary Gellatly, of the Toronto-based legal clinic Parkdale Community Legal Services, said that to date, ESDC has rarely issued fines for misclassifying drivers.
Neither ESDC nor the finance ministry responded by late Tuesday to questions about funding for labour enforcement, or what kind of penalties will be imposed for tax violators.
Ms. Gellatly said that while CRA enforcement against poor actors is useful, she is concerned that low-wage workers who have been forced by employers to self-incorporate will be hit with penalties.
“Truck drivers do not have the power in the employment relationship to stop misclassification,” she said. “It is not employees’ fault that employers did not make tax deductions at source.”