A little of what I see coming

Canada has intimate ties with United States. In fact 80% of our economy is based on US consumption. This means that whether we like it or not as goes the US so goes Canada.

This has huge implications. When Harper decides what to do with GHG he rightfully “dovetailed” his position to the US. It makes no sense to do anything else. When we choose a monetary policy we have to consider what the US is doing and “dovetail” our response accordingly. It’s not that we’re absolutely powerless or mere puppets, but we have to consider our circumstances and surroundings. This is why Canadians need to know what’s happening in the US and plan/project/prepare ahead.

The US is going through a “civil war”, not with guns and bullets but with political philosophy. The majority of US is right of center. When Congress was majority Republican they did not act so. The people rejected them and Democrats took over. Obama rose to prominence as a relatively unknown. He stood on two platforms that appealed to a lot of moderate republicans, “”balanced budget” and “accountability/transparency”. What is happening now (primarily from tea parties) is a huge rejection of government (41% prefer an independent approach). THESE NUMBERS ARE HUGE! Canada took over twenty years to get a grassroots with ¾ of that percentage (Preston Manning to Harper). Politically the US are activist and move much faster than Canadians. Therefore, having said all that what can I say about our future policy? Here are a couple of my conclusions:

There is a good chance Cap’n trade will die! The strong right movement in the States will overturn the EPA (along with “climate-gate”). The 2010 elections will move congress to a “stalemate” (at least). If Obama ends up being a one term President the EPA “promises” will be empty air. If the next president radically cuts government spending then monetarily the US will be dependant on perception of the treasury board strength (audit wise). They will have their currency devalued by 50-75% (or more depending on stability). Canada will have to follow because too much of our economy depends on them (Europe will try not to but probably will). Inflation and possibly hyper-inflation may be the worlds fate (short term minimum long term possibly).

Transportation will always be important. However, depending on what the US does, Canada’s shipping lanes will settle and plunge settle and plunge. The surge of instability will be reflected on the highway. It will bring opportunity and devastation, sometimes in the same day. Best advice is…. Get out of debt, stay out of debt! Don’t invest anything unless you can afford to write it all off.

Speed Limiter Debate gains Momentum

Several years ago I worked with a lease/owner operator who got into an accident. He damaged a trailer. The damages totaled $2664.00 (so he was told, he never received an invoice). His deductible, clearly labeled on his signed contract, was $2500 yet the company removed the entire amount from his statement. He asked the controller why he charged the extra $164. The reply was “…we didn’t put it through insurance…”. The operator calmly and rationally tried to reason with the controller to get back his $164. It was no use! The company stood by their flawed logic and ignored their written contract. They had his money and nothing short of a law suite would change it. I had another operator who experienced the exact same situation and flawed logic but that time the damage was $5700 ($3200 above deductible).
Flawed logic is a form of deception, an action designed to distract someone from the glaring facts. This intellectual “slight of hand” is similar to strategic misdirection or “spin”. Call me old fashioned but to me a spin doctor is just a fancy word for professional liar. Imagine an occupation that pays people to lie and on a sliding scale, the better the liar the higher the pay.
There are many professions and industries that require “spin”. The most infamous work(ed) in the tobacco industry. They funded millions of dollars of “research” to “prove” that tobacco didn’t cause cancer. However, when the truth finally came out in court the industry coughed up BILLIONS.
The speed limiter debate is not without its own spin doctors. Let’s first look at the facts on how the law is administered. Let’s see where the liability or punishment is placed and what affect it has on the industry. On July 3rd I talked with a company driver who got a fine of $390.00 for driving a truck that is “non-compliant”. He asked his boss many times when he was going to “emasculate” it. The procrastinating employer kept saying “don’t worry” blah, blah, blah… He’ll pay the fine if there is one. Needless to say the driver had to keep working (wife-three kids-mortgage). Then he got checked. When he delivered the ticket, his boss still agreed to pay it (luckily) but he found out two things along the way: first the ticket goes on his personal abstract (apparently no demerits), second there was NO fine for the owner, it doesn’t even go on his CVOR scoring (MAYBE in the future but not now). It therefore appears the application of speed limiters is a simple punishment and tax on helpless drivers, not on non-compliant companies. The driver I mentioned had absolutely no physical or legal opportunity to comply. His only option was to refuse to work and therefore refuse to pay his mortgage and feed his wife and kids. In effect, this legislation places the ENFORCENENT of a law firstly on the pocketbook of the DRIVER yet ignoring the ones with authority.
Secondly let’s consider the evidence trail of how the speed limiter legislation was lobbied (spun). It was promoted as reducing both accidents and the industries carbon footprint (GHG). The argument originated from the OTA spin doctors who were successful in rejecting or ignoring all other evidence: University of Manitoba’s Barry E. Prentice’s excellent article June 2008, Transport Canada Studies released July 4th (not even three weeks after the vote), the notorious “public meeting” shame, and many others. The OTA’s spin is complete with its truth’s, half truths or maybe even full out lies. We shouldn’t be shocked at this. “Spinning” may well be a large part of David Bradley’s job description.
There are some truth’s mildly associated with the spin. The 400 series highways may well carry the majority of freight travel in Ontario. The 401 highway alone accommodates over 400,000 vehicles per day and is one of the busiest highways in the WORLD! One contributing factor of the volume is the speed the vehicles are allowed to travel. If the OPP actually enforced the speed limit the volume would decrease as congestion increased. Slowing down trucks and implying it doesn’t affect congestion should insult intelligent people. It is mathematically impossible!

The half truth about accidents is that speed kills. Of course speed kills, especially when its 80,000 lbs, but speed alone doesn’t kill, especially with heavy trucks. It’s the passing that creates the danger. Therefore, logically, the speed limiters actually INCREASE danger rather than decrease it (this logic was brought out by Mr. Prentice’s article but flat out ignored by the MTO). It was bad enough changing lanes going the same speed as the four wheelers, now try changing lanes going 15kmh slower than the 399,999 Mario Andretti’s. There is a direct correlation between the time of day traveling and the volume of urban fingers you get. But, if you are collecting fingers, there is more to consider than just time of day. The flat as a pancake 400 series thoroughfare does not represent the entire contour of Ontario. It has lower grades than Uncle Buck.
Traveling Hwy 17 has become a real crap shoot. Consider the hill near Roseport, which used to be climbed without gearing down (all-be-it approaching over speed limit). It must now be ascended in the basement (results slightly vary depending on gear configuration of course). A fully loaded tri-axle hitting the base of the hill at 112 KMH can stay in top gear right to the peak. However, just 7 KMH slower (combined with a delayed electronic kick in) has the driver pumping down gears till he’s crawling up at about 35 KMH (a perfect opportunity for collecting rural fingers). Since most drivers are paid by the mile the speed limiter reduces wages to about $8.64 per hour on Roseport hill (I’m afraid I don’t know the exact name). Isn’t that below minimum wage?
But alas, this is only late summer! What happens in our frigid ice and snow? Since drivers can’t chain up in Ontario how much do they get per hour when the inevitable spinout occurs? Can a driver start collecting EI immediately upon spinning or do they have to wait until the tow truck comes?
Assuming the MTO's primary concern is public safety is ignoring their track record, for example the awarding of LCV permits (Long Combination Vehicles). If safety was MTO’s primary concern, only trucking companies with excellent safety records would be awarded. But MTO awarded exclusive permits to companies who rated “satisfactory-unaudited” while hundreds of companies who rated “excellent” were flat out ignored. Logical people understand that MTO is all about political favoritism not safety. It’s the provincial Liberal version of the sponsorship scandal.
Safety was only one spin the MTO and OTA used to ram through bill 41. The other spin was the reduction of green house gases. If the OPP would enforce the speed limit the way all other provinces and states do, GHG savings would be generated from both trucks and four wheelers without any tradeoff with safety due to an increase in passing. Therefore any GHG savings from electronically limited trucks on the 400 series is a mute to duplicitous argument.
The real question is: what affect dose electronic limiters have on non 401 Series roads? Does GHG increase, decrease or stay the same?
Let’s look again at Hwy 17. According to my documented sources (all else being equal) it now takes about 45 liters MORE to travel from Thunder Bay to Ottawa than it did June 30 2009 and takes 15-25 minutes longer (in the summer). Trucks can no longer use momentum to carry them to the top of hills. Add to this cost: 4 wheelers trying to pass 35 MPH trucks in two way traffic, winter spinouts, or twisted drive shafts. All these situations costing MORE! It uses MORE fuel, emits MORE GHG and increases our dependence on fossil fuel. Sounds like a government solution to me! Anyone care for a cigarette?
Why would the MTO be interested in passing a law that has little to do with safety or GHG? The answer is simple, it’s because the OTA is interested! The speed limiters were birthed and written by the Ontario Trucking Association lobby group.

“…as for the amendments, we have none, and in fact I would go further and say that we would be very strongly opposed to any amendment. This is our bill. Every period, every comma, every semicolon was put there by us, and we would be very, very unhappy were it to be amended in any way…”

Lobby groups (same as unions) serve their members first. It’s not right or wrong it’s just how it’s done.
So why is the Ontario Trucking Association interested in increasing GHG, costs, risks and accidents? It surly isn’t to mandate their competition better fuel savings. I originally thought it was “…to legislate competition OUT of Ontario markets…”. Though this may have been on the minds of some OTA members I now believe the lion share of the reason is YOU! That’s right the Truck Driver!
Given the chance to drive 105KMH for 40 CPM verses 115KMH+ for 40 CPM, too many drivers were still choosing the 115KMH+. The OTA members, instead of possibly raising their pay rates, chose to restrict their competitions ability to attract YOU! That now means your speed and paycheck are limited (specifically in jurisdictions that have posted speed limits over 105 KMH). While other provinces and states are increasing speed limits Ontario mandates inter-jurisdictional limits. Just who do they think they are?
Let’s remember, individual OTA members hide behind the association, manipulating the industry human resource pools through legislation all the while “spinning” Bill 41 as a great environmental and safety initiative.
At the time of passing the MTO knew of the “spin” the OTA was making (otherwise they would have waited for Transport Canada’s studies and given a true forum to debate the issue). The reason they didn’t is because the Ontario Trucking Association politically owns Jim Bradley! Even though the liberal party was elected to represent the public, that assumption appears to be just another spin. As we can see, once elected, the office goes to the highest bidder. Vote out the liberals if you like, but that still doesn’t expose the bank rollers. The true puppeteers of this spin are the OTA members
It was the individual members of the OTA that voted to spin and misrepresent Bill 41 to the public. They hid behind an association but they are all equally complicit. Let’s remember, if they agree to spin in one area of business, to achieve their bottom line objectives, how safe do you feel working for them?
At the beginning of this article I wrote about a trucking company who “spun” $164 from an operators pay. Would you leave a company if they spun 164 of your dollars? Some would some wouldn’t. Would you leave a company if they spun 3200 of your dollars? Most would. The employer-employee relationship is based on trust. If they practice the art of “spinning” for $164 you can be assured they will enforce it for $3200. A smart driver will leave (or at least start looking) the minute they see the spin regardless of the amount or its impact on them personally.

From Subsistence Allowance to Speed Limiters

I'm switching gears somewhat as the implementation of Per-deum/subsistance allowance becomes more accepted (at least somewhat). As the first step of introduction to my second book, I'm entering another topic, "trucking companies". Specifically, I'll be drawing the line on the speed limiter debate. It is a very hot and passionate controversy. By no means is it over just because it was rammed through a vote.

Bill-41 is an example of how our democracy works. It was the brainchild of the Ontario Trucking Association. People elected to an office generally don't know much about an industry. Lobby groups present their case and (if it appears politicaly expedient to do so) bills are passed. Therefore the real power in Canada (at least at this time in our history) is lobby groups such as the OTA (made up of trucking companies).

Let's think logically about speed limiters for a moment. On the surface it appears a "no-brainer" enforce speed limits electronically rather than through the OPP. Anyone who opposes it appears to be a red-neck speeder bound to break all laws (a very unpopular poition). I don't think that position will be able to be reversed publicaly without sound leadership accompanied by clear arguments about the negative aspects of ESL's.

The negatives (just to name a few):
1. Limiting Inter-provincial trucks means OTA/MTO is governing other jurisdictions which have different speed limits.
2. This jurisdictional conflict may jeopardize NAFTA
3. May make roadways LESS safe (due to increased passing)
4. May actually increase fuel consumption since momentum for fuel management is significantly reduced.

If Canadian truckers don't band together against jurisdictional conflicts (such as these) they will continue to be needlessly regulated. I think it's about time that the trucker fights back.

Action Packed Future

For those who have never read the information on this sight before its best to view it from the beginning of November forward, it may save you thousands of dollars in taxes.

We will be rearranging this blog sight to accommodate another topic. Its an introduction to my second book. Until then any questions regarding Subsistence Allowance and its application can be read at this sight or you can contact me directly at Robert @thrconsulting.ca.

Stay tuned for additional action packed controvertial trucking industry research and analysis.

Another Canadian Tax Scandal

June 2009 will probably prove to be a major juncture in my battle with meal allowance, per-deum, subsistence allowance. Nothing what I’ve said in the past will change but I think a slight change in focus may be needed. In the last three years I have NEVER battled CRA regarding the application of meal allowance. However, I HAVE battled accountants and lease/owner operators.

The battle is never direct. Those who contact me directly have been very gracious and professional. However, there are too many accountants just not applying the rules correctly… or not even at ALL!. It’s disgraceful, and can only lead to disaster and confusion. It is in June 2009 I must make a choice for the betterment of the entire industry. Where do I concentrate my efforts? Immediately, right now, I’m concerned about the thousands of operators who are financially liable and don’t know it or refuse to believe it. It’s a tax scandal waiting to be exposed, but this time CRA is not the problem.

Success is not always what it seems

Subsistence allowance/Per-deum continues to be a controversial topic among accountants, not CRA agents but accountants. They seem to continuously mumble about its application and their firms liability. Operators get half truths one month and reversals the next. If accountants don’t “get with it” operators bumping down the road will loose their faith in either the system, their current accountant or both.

When I first started publishing articles (after my book) I thought the lion share of education would be directed at the operators not the accountants. Oh well, it seems I’ll be tapping away at two industries simultaneously.

Last week we had another client go through an audit. It’s a standard thing for clients to be audited. The interesting thing about this one was that contrary to our communication to our client harsh and strong words were directed at the auditor. Apparently our clients thought it “prudent” to give the auditor a piece of their mind before the audit even began. This is not advisable under any situation since auditors have a great deal of autonomy and can make things much more difficult than they normally are. Though some accountants would like to mussel clients we have not gone that far… yet (just kidding).

The audit actually went exceptionally well even though the “foundation” started shaky. If fact our entire system got anther round of compliments, the employer-employee agreement all the way down to the personal vehicle log. It helped that the client was A rated and balanced down to zero regularly (monthly). All our other audits occurred with C or D rated.

Even so, I am still convinced that the application of subsistence nationally is dependant on a universal application of standards among accountants and operators. Two or three years from now, if Ottawa politics changes every subsistence allowance user may find themselves in the crosshairs if not universally applied.

I’m focused on making the system secure… which is sometimes a challenge when dealing with CRA.

That's my story.... one more time!

Two more court cases came into the media recently, both had to do with personal vehicle, log books, and company vehicles (in this example leases). I have been rather blunt regarding business use of personal vehicle or company vehicle used for personal use, even accused of being more rigorous than the average bean counter. These two situations may bring some clarity as to both my position and my “standards”.

The first was Jorgensen v. Canada, 2009 T.C.J. No. 20, T.C.C., Sheridan J., Jan 19/09. Digest No. 2846-025 (Approx. 7 pp.). A farmer had an extended cab diesel truck with no log books supplied. Other not so critical information was that the taxpayer traded in the lease as soon as the warranty expired or was about to expire. Additionally the “extended cab” was modified or converted to a “non-passenger”.

The judge (considering all the evidence) assessed that the truck was used all or substantially all for business purposes. Even though the taxpayers did not maintain a daily record of the trucks use, they maintained sufficient source records of their business activities to allow them to reconstruct a reasonable diary of the business use of the truck.

This, at face value, seems to contradict much of what I have been stating. However, let’s look at the second case.

The second is Martin v. Canada 2009 T.C.J. No. 2, T.C.C., Margeson J., Jan 05/09. Digest No. 2846-023 (Approx. 13 pp.). A corporation leased vehicle was provided to the wives of two shareholders. CRA assessed taxable benefits and standby charges for each participant. There were no log books supplied and the vehicles were licensed as personal use. The judge agreed with CRA in this case.

In my personal estimation 70%+ of personal vehicles that are used for business purposes (and are used as deductions) do not have log books. Too many accountants revert to the first case assuming they can “reconstruct” a defense after that fact. Many auditors don’t push the issue. The industry assumption becomes “no log book is defendable”. I still strongly disagree, especially in the trucking industry. The Jorgensen’s were farmers, which is a completely different industry than trucking. Driving to and from fields moving equipment and supplies is vastly different than using a “second vehicle” to transfer paperwork and supplies. Reconstructing a reasonable diary for a trucker (without a log) will be vastly different. It will be similar to the Martin case where vehicles are licensed as personal rather than farm use.

My position stands! No log book (for truckers using personal vehicle) no deduction. That’s my story and I’m sticking to it.

Subsistence Allowance, a look to the future

OK! Long time no update. Congratulations to all those who won a copy of my book on CD. April was a very busy month for me. We have received a great deal of communication about subsistence allowance coast to coast. It seems many accountants are realizing the national implications.

This is what I predict will happen over the next several years (assuming no political changes in Ottawa). Independent accountants will apply subsistence allowance (per-deum) to clients (usually with a signed liability waver). Therefore operators will be left “vulnerable” to regional auditor interpretations.

Until CRA comes out with specific bulletins on the trucking industry applications the entire system will not be “confirmed” in the minds of many designated accountants. Since currently no firm is publicly willing to ensure the application (providing protection as we do) the entire industry is left without assurance (something CRA has on their side). One of the several reasons I believe they will NOT comment publicly for several years (if at all).

It’s a little like what happened when Don Wilkenson won that court case in August 2000. Within a couple months accountants all across Canada knew that the TL2 was not restricted to CRA guidelines, however, they were not informed of what number they CAN use… therefore to ensure returns accountants continued to restrict THEMSELVES to the guidelines. Uncertainty fosters conservative standards… or… if in doubt leave it out!

For those who want to know what needs to be done read my prior posts. It makes more sense when you start reading from November 1st 2008

Taxes and National Equality

The trucking industry (driver specific) has, at least in my opinion, never been so quiet. There seems to be a silent desperation going on. Those who are making money say nothing and those who are not are eaking it out. Options are slim. Saving every penny, including taxes, is on too many minds.

I stated in my prior blogs that when times are tough the crooks come out from the woodwork. The temptation amoungst drivers and operators is also there. I urge people great and small to weather the temptation. Stay true to integrity. Just because Canadians don’t like taxes dosen’t mean they can cheat on them. Let’s be clear Canadians don’t ike “over paying taxes” not “not paying taxes”. The key is organizing your finances and business to pay the LEAST amount of taxes.

Those who regularly read my blog know the best possible method of reducing taxes to the position of national equality. If you want to know the whole story read the 50 entries below. I guarantee you won’t be sorry.

Who's responsibility is it anyway? The demise of the TL2!

In a perfect world where justice and equality prevails, everyone pulls their own weight, carries their own pail of responsibilities. There would be no government bailout of GM, Chrysler, Banks or Insurance companies. Sink or swim is the motto of business.

If in that world every industry carries their own there would be no need for the TL2. Why should the government reimburse citizens for industry related costs? And yet this is what is being done. Thirty years ago the trucking industry paid meal expenses on the road, but they abandoned that (or the responsibility taken from them) when the government started issuing a “rebate”.

In a perfect world a truckers wages would be separated from his job related costs. But we’re not in a perfect world.

Canadian Tax Savings...

All hail head colds, the stumper of all thoughts!

Saving taxes is a love for many. The extent to paying taxes boils down to one fact “fair share”. Canadians are not averse to paying taxes just so much as they believe they are not paying “too much”. Using the per-diem system ensures the Canadian truck operator they are in fact paying no more (and no less) than what is fair and reasonable. Check it out! If every lease/owner operator in Canada used the system they would save $100-200 million dollars in taxes.

E-mail me at Robert@thrconsulting.ca and you’ll enter to win my book on CD… FREE don’t even have to pay shipping and handling. Just read the entries and learn for yourself the real benefits.

Audit trail one of the pillars of compliance

I watch CSI at times, piecing together evidence of an event. Blood trails, angles of entry, exit and deflection are all set together to tell a story. There is nothing that is left out. It shows motive, it shows intent and it shows what actually happened. Evidence usually dose not lie, things can sometimes be covered up but even the absence of evidence is evidence.

So it is with an audit trail. It is the paperwork that supports an agreement (employer-employee). It also reflects motive and intent, especially over an extended period of time. Where money goes reflects probably the clearest intent of it owner.

I once took a survey of leaders in a specific field. I was given the mandate to find out the priorities and intent of the field as a whole. I decided to ask only one question. “If I gave you $5000 dollars what would you do with it?” The results of my survey were an in-depth reflection of the entire field. It was very successful.

How an operator manages their cash in their corporation MUST reflect their employer-employee agreement, both its intent and its ultimate results. If all an accountant does is make journal entries to a shareholder loan account at the end of the year it is GROSELY inadequate. If the operator doesn’t want to conform to the requirements then the operator should not be able to benefit from compliance. NO COMPLIANCE… NO BENEFIT… (non-taxable that its!)
If an accountant doesn’t educate their clients to provide a reasonable audit trail, one that reflects the employer-employee agreement, I suggest the accountant find another industry to serve… maybe specialize in Chiropractors!

I know I’m harsh to accountants, but I believe that they are critical to the national implementation of subsistence/per-diem for the entire trucking industry. If they don’t get it right, the potential negative publicity of a failed appeal will delay tax savings to thousands of operators…

Don't forget to enter for this weeks free draw (see prior few entries for details). Last weeks winner has been notified and their CD's are on the way!

Political Will continued...

The publicity around per-diem (subsistence/meal allowance) is not an income tax issue! It is a political issue, guided by political will! Let me take the long road, with a few stops along the way, to explain what I mean.

CRA has many, many levels of authority. The higher up someone advances the more politics are involved in their job descriptions. In order to advance as high as the upper crust “generals” (as I described them in my book) civil servants need to make sure they don’t get blamed for ANYTHING! “Cover your butt” is the first course taken by civil servants when contemplating advancement. This means that any new application of the income tax act must be able to be flexible enough to weather shifts in political parties. Sometimes new administrations direct CRA in different directions.

Here is the latest example of “upper level” income tax legislation designed to be applied through political will rather than clear legislation! The article is called “Lawyers see overkill hidden in federal bill” it is found at http://www.thebottomlinenews.ca/index.php?section=issue

The article can be summarized as follows. Current changes to the Competition Act and the Investment Canada Act hidden in our government’s budget implementation bill is legislation that is aimed at those who “fix prices” through cartel style agreements. It “…changes the conspiracy law to make it illegal to conspire with a competitor, without proof of the impact on competition…”, “…there will be no test… any agreement will be a violation…”. Another significant change comes with the label “abuse of dominance” (anti-bullying policy). As the article states “…caution is the keyword as it will be hard for many companies to know, in advance, when they have abused their dominant position… it is difficult to distinguish between aggressiveness and abusiveness…”

In this legislation there is deliberate vagueness. It produces an INVISIBLE glass ceiling, imposing “law” without clarification or definitions yet with record setting fines and penalties. So we must be realistic in the application of the law, ultimately it will come down to “political will”. Who will complain? Who will listen? Who will send out the dogs (no pun intended). Owners of monopolies, oligopolies etc would view the legislation as forcing a “blank check” to be written to the government… with no clear invoice!

Legislation like this may be designed to intimidate and control without specifics. It is a reflection of how the higher level CRA officials view their jobs and positions. Legislation must have administrative flexibility, no definite right/wrong, no clarity just authority.

The only way to affect long term stability in the application of some income tax issues (such as subsistence/per diem) is political will. Most “exceptions” must be individually defended until they become common knowledge with universal application. Once enough people use the exception it would create a negative public perception if it suddenly was taken away.

The more people know about it, the more people who use it the safer it is for everyone. Political will, in a democracy is always the citizens. Think about the implication of long term application and stability of any tax benefit!

Keep sending your e-mail's to win the CD version of my book (see prior entries)

Ethical application of the Income Tax Act

I’ve been in discussion with some very interesting people in the last several months. Privately accountants nod their head in acknowledgement and slap my back in support of the effort I’ve displayed in applying ethics to the income tax act. However, as several have asked “…what does the income tax act have to do with ethics?...”. It is a very interesting topic, especially amongst accountants. Placed as bluntly as that, reactions usually vary from philosophical interest to “deer in the headlights”. Applying ethics to the Charter of Rights and Freedoms is a given. The Federal Accountabilities Act is a shoe-in for an ethics discussion, but the income tax act? The longer a person’s been in the profession the more it appears wasted effort. It’s wasted because the act is so complex and produces such conflicting results, not the atmosphere that fosters feelings of security, justice and equality all results of solid ethics.

I read a couple articles lately that show examples of this. There was an article in “The Bottom Line” http://www.thebottomlinenews.ca/index.php?section=issue page 19 by writer Vern Krishna titled “Law consistent in its inconsistencies”. Without going through details (which are pretty amazing as well as complex) it discusses the outcome of a court case similar to the one I described on December 19, 2008 Singleton vs Canada. Without me drawing to much attention to a different case I’d just like to quote the writer’s final statement of the supreme courts decision “… Westminster prevails over GAAR, except in the circumstances where GAAR prevails over Westminster…”. It was a clear example of the “super complexity” and circular reasoning/results within the income tax act.

There have been many people who have stated that accountants refuse to publicly fight for their “clients”. They too often assume “all accountants just work for the government anyway”! These are the people who believe that the income tax act is a “black and white law”. They believe it is clear what is allowed and clear what is NOT ALLOWED! Thinking they know the white they accuse accountants of painting things black. This may be a serious misrepresentation of the industry… note the vague terms.

The income tax act has over two thousand pages that are added to it every year. For every concrete rule there are several (if not many) concrete… or vague exceptions. The more complex a deduction, generally, the more clarity is lost to various interpretations, as in the English spelling Rule: I before the E… except after c… or in seize… height… either… foreign… It becomes so weird that you can choke on the exceptions and be forced to use the Heimlich maneuver.

Accountants generally like systems and predictable rules. The economy generally likes systems and predictable rules. The income tax act is not friendly to either unless accountants refuse to navigate the plate of spaghetti exceptions. Some accountants assume one primary rule: the fewer exceptions used the more assurance there is of compliance. Better to err on CRA’s favor than to risk explaining your string of exceptions.

GIVEN THIS… the application of per-diem to the trucking industry can be too much of an “exception” to too many accountants even though it is based on sound ethics and applications historically allowed within the income tax act.

If CRA can twist a very flexible act into a contradictory tool of discrimination rather than a guideline, ethics means NOTHING! The bottom line would be… don’t stand in the way of the judge, jury and executioner. Stay quiet!

Who is going to pay an accountant to defend this income tax application? Both an honest and reasonable question! Few, if any, individual operators will pay to have their accountant go before the Supreme Court. Few, if any, individual accountant will pay their own way to go before the Supreme Court.

So why do I write what I write? Why not just apply it and be happy to grow my firm?

I need time to explain my reasoning. Let me give you a hint. It has to do with political will!

See you on Thursday!

Don't forget to e-mail your name for a free CD version of my book. See prior days for details!

FREE CD Book giveaway draw every Saturday. One (or more) per week for the month of April. Find out how by reading this page!

For some, spring break develops pictures of beaches and university students partying all night. For me it’s a reduced work load at the office so I can spend half days with my kids. Tuesday I watched the Lord of the Rings trilogy with my son. I can’t tell you how many times my feet fell asleep.

The half days are filled with immediate correspondence and critical things (basically a week of partial procrastination). I’m working on developing a more in-depth relationship with my readers. This is one reason I am giving away one copy of my book on CD per week (in a draw) to anyone who e-mails me stating they read each of my entries since November 1st 2008 (honor system). If you want to be included in the draw just e-mail me at Robert@thrconsulting.ca. I promise I won’t sell your e-mail address to anyone. If there are too many participants I will increase the amount of CD’s given away per week to make it easier to win (at my discretion).

The publicity of per diem subsistence allowance is slowly building. There are accountants all across Canada reviewing data, informing drivers and making career choices. Working with accountants is like herding cats. Each has a mind of their own (which, long term, is actually a good thing).

Truck drivers are becoming more and more attuned to the options available to them. It’s a slow process but the information supply chain is starting to work smoother.

DRAW FOR FREE CD VERSION OF MY BOOK... one winner every Saturday for the month of April!

I'm reminded of Lord Randolf Churchill (the father of Sir Winston Churchill). He was in line to be a probable candidate for the Prime Minister of England, and would have had he not contracted sypholis... anyway! Before his afliction he was as swift minded as his son was to be. After inumerable quotes that garnished him a reputation for intellectual greatness he finally said "...and the constant necessity of trying to say something new makes one a drivelling idiot..." (The Last Lion/ Visions of GloryLittle, Brown and company, Author: Manchester page 203, ).

If you scroll through the history of short articles you will have more knowledge about saving taxes for a lease/owner operator than 80-90% of all designated accountants serving operators coast to coast. It dosn't matter if they belong to a "fellowship" or even have direct access to the Finance Minister! You have the eductiona to save more tax cash than they do.

This site gets 450-650 hits per day! It has had over 15,000 hits per month since inception. I chart both the number of hits as well as how many pages are viewed. Today I'm going to suggest over viewing the history, starting with the very first post (November 1st). This blog is designed as an educational and entertainment source for CanadaTruck Operators. It's designed to expose one of the most horendous incremental tax assaults in Canadian history. It is also designed to perfectly cure the anguish that assault has caused. Go ahead educate yourself! If you e-mail me that you read it all I will place your name in a draw for a free copy of my book on CD. I will draw one winner every Saturday for the entire month of April 2009.

Don't get detoured on the road to tax savings

On the issue of incorporation many operators ask very similar questions. One question that keeps coming up is having your corporation own a vehicle so the entire costs can be written off. It is a question that comes about because when the average individual thinks about corporations they picture big money operations such the trucking companies they work for. They see trucking companies have “corporate vehicles” and they often are allowed to drive around “free”. They then assum they can do the same thing if their corporation purchases one. The truth is, they can but at a cost.

CRA does not want “company vehicles” driving around as total write offs. Automobile dealerships (for example) regularly used to provide dealer plates to their salesman. One of the reasons why they do a lot less of it is because of “taxable benefits”. Taxable benefits are the exact opposite of non-taxable benefits (on that point my logic is impenetrable). Estimated re-imbursement for job related costs are classified as “non-taxable” the exact opposite of receiving the benefit of a “company vehicle” for personal use.

If a company owns a vehicle and the employee uses it as a personal vehicle, CRA calculates the percentage of personal use and assigns a taxable benefit to the use (a generous rate by the way). However, even if the vehicle is NEVER used but is parked on the driveway of the employee, the opportunity for personal use still exists, and is therefore taxed. The specific name of this opportunity is called “standby charges”. To place a long complicated formula into a simply number it would be 30% of the purchase value. This means that a $20,000 vehicle that is NEVER used but parked just once on the employees driveway is deemed to be $6000 of taxable benefit… indefinitely! If the vehicle is kept and owned by the corporation for 10 years the charge will be $6000 EVERY YEAR! It does not reduce in value as does depreciation.

This application of tax is BRUTAL on company owned vehicles. It is so horrendous that operators who are incorporated should NEVER have their corporations own a small vehicle. Using their personal vehicle for business use, and having the corporations pay them “non-taxable benefits” by using the treasury board re-embursement figures is the BEST after tax system available to ANY Canadian citizen. Check out your province rates at: http://www.tbs-sct.gc.ca/pubs_pol/hrpubs/tbm_113/b-eng.asp.

Saving bucks is often times a matter of using the right system!

Human Resourse: supply, demand, taxes and labor laws

I have had the pleasure of talking with perhaps hundreds of drivers coast to coast. Sometimes it affords me information about certain geographical areas that experience certain trends where other areas do not.

As a small example (if you please). I spoke with a recruiter a little over two years ago (pre Oil boom of Alberta) and they informed me that the rate of pay for their lease/owner operators based in the West was four cents per mile MORE than the rates for Ontario based operators. It confused me slightly because at the time it tended to be more expensive to live in Ontario than in the West. The reason was… supply and demand! There were more operators available in Ontario than there was in the West, therefore they didn’t need to pay as much.

This supply and demand example reflects more than just “rate of pay”. Another more drastic example I have heard and seen out of Ontario is the tendency for trucking companies only to hire/contract drivers who own their own corporations. It’s a “driver services company/corporation”. A single driver wanting to work for a company is pressured into incorporating, and the corporation would be paid by the mile. The benefits to the trucking company are numerous: no labor board hassles, payroll taxes, short or even long term obligations, damage claims… on and on. This tendency allows some trucking companies to do an end run around numerous labor restrictions while legitimate companies are forced to operate legally. It’s a corner cutting that MUST stop.

Of course when everyone is looking for work, desperate people end up doing desperate things. Giving up employee rights should not be tolerated. It’s not good, but it probably won’t stop until demand picks up above supply.

In tough economic times scoundrels run rampant. Watch yourself.

BEWARE OF DRIVER CONTRACTS...

Though this blog doesn’t get many comments I regularly receive responses directly by e-mail. The other day through various circumstances I received a copy of a “driver contract”. For obvious reasons I won’t share who it came from. Here is a condensed outline:

1) Driver’s name:_________________
2) _______ cents/mile for the month… etc.
3) A $300 per week ($1200 per month) for road allowance is deducted prior to payroll deductions in lieu of TL2.
4) A phone allowance… etc.
5) Health benefits… etc.

Item 2) shows the individual gets a cent per mile “gross” and item 3) shows a road allowance deducted off gross. This means the rate of pay is entirely based on cents per mile while “subsistence/per diem/road allowance” is deducted as a portion off the gross.

No matter how a person explains this or defends this it will NOT pass a non-taxable benefit audit. As I have stated many times before subsistence/meal allowance/per diem MUST be paid BY THE DAY and independent of productivity pay. I’m not trying to be a smarty pants, I’m trying to save people a mountain of headaches, penalties and interest. I repeat, this contract will NOT stand up to an audit!

In an audit the truck driver will be reassessed based on the gross (before road allowance deduction), therefore the tax deducted will be far too small (ie big tax bill). T4’s will be RE-ISSUED and both EI and CPP will be assigned as penalties to the trucking company. Additionally, holiday pay can be assessed on the $1200.

The risk to driver and company is outrageous with no benefits whatsoever unless both the company and driver are never audited. If you are a driver or a company that uses a contract like this please, for your own sake, stop immediately!

In my book I went through the application of subsistence to a trucking company. The national implications are bold and somewhat risky (to the company if they hire a lazy character). It can be done, probably in the next ten years it will be done but not like the example above. If companies try and cut corners and have the best of both worlds like this contract tries to, there will be screaming “Nay Sayers” coast to coast when re-assessments are issued. Do it right or don’t do it at all! This above mentioned contract places risk on both driver and company. STAY AWAY from this!

There is a way to do it legally but it’s almost triple the paperwork and the risk to the DRIVER is substantial. It will also produce a moderate risk to the company if the driver is lazy. For both these reasons I will not publicly explain how to do it. You can contact my office if you like but I’m not convinced of the national benefit of having companies hold that much power over individual drivers.

My goal is to have subsistence allowance applied the way it is designed to be, as a daily reimbursement of job related costs! Personally I don’t think the trucking industry is financially or emotionally mature enough to carry the responsibility of it. Some will undoubtedly desire to, but the pressures of the industry will financially hammer them back into the old mold.

That’s my story and I’m sticking to it!

The Ombudsman's report...

Last week I received a copy of the Taxpayer Ombudsman’s first annual report. I’m not sure how many people know of or use the Ombudsman but as an accountant it’s a valuable source and venue for our industries difficulties.

I want to comment on a story the report shared. I’ll quote it here:

“The operator of a special care home for adults received a per diem allowance for each of her residents from the provincial government. This allowance is a form of subsidy to the residents and is not considered taxable income for the owner of the home. The CRA officials who reviewed the owner’s file were not aware that this revenue was ax-exempt and proceeded with collection action that included freezing the taxpayer’s bank account and garnishing $4700. This resulted in considerable difficulties for the taxpayer. Once the Ombudsman got involved, the CRA ceased its collection activities and released the taxpayer’s bank account.”

This story in the report showed me two things. First, that rogue auditors (its what I call them) often times are wrong in their interpretations of events (such as per diem or subsistence allowance being classified as non-taxable). Since per-deums are relatively unique to the trucking industry I assume in the next couple years rogue auditors will make their stand somewhere or in several places across Canada. Accountants must be aware.

Secondly, the concept of non-taxable benefit is clearly understood, not just by the Ombudsman but also by CRA (once they are enlightened).

The crusade to have operators use subsistence will be speckled with resistance and education both by drivers as well as CRA agents.

The only comment that needs pondering is what form of compliance did the special care operator have in regards to the per diem system? Was there an appropriate agreement? Paperwork? Etc. We must assume there was since CRA backed down on the claim. In my opinion compliance and audit trail will be the fulcrum for many accountants applying the system.

Tax deductions usually a matter of definition

I came across an income tax case the other day. It’s related to the topic I raised last week (personal vehicle for business travel). All accountants know that driving to and from work is NOT tax deductible. Here’s the story:

An employee of a company worked out of their personal home office. During that time they also drove too and from the employer’s office. The employer paid the employee for the travel and the employee did not report the income on their taxes. Even though the employee mostly worked from their home office, the judge sided with CRA that the amounts received from the employer was taxable. One of the critical points in the case was that the employer had an office available for the employee at the employer’s location. The choice to have an office at home “…was entirely the taxpayer’s decision… and the decision was based on convenience.” McCreath v. Canada (2008) T.C.J. No 454, T.C.C., Campbell J., Oct.30/08. Digest No. 2833-025
Something of importance should be noted. The tax courts determine business travel and also home office expense (not specifically discussed in this case) in light of “base of operations”.
If a person is self-employed the base of operation is clearly the home office (practically or so documented). Under incorporation the base of operation is clearly the head office (practically or so documented). Therefore an employee driving to and from the place of employment is not an issue unless documentation implies otherwise.

Therefore when a driver logs his/her personal vehicle as “went to work” there may be an implied problem with the definition of “base of operations”. However, if the log reads “went to move equipment” or “delivered paperwork to customer” the definition of “base of operations” is not compromised.

Though this case isn’t an exact replica of the concept it does enforce the courts understanding of tax deductibility.

Why accountants are conformists rather than activists? (part two)

Here is another theory why accountants are conformists. “most accountants are conformists because the accounting industry is a conformist industry”. (pause for laughter)

Dah! (you say) Of course the industry is conformist!
Yes it is… but let me explain my point from a different angle.

Several years ago Enron, and other multi billion dollar accounting scandals, exposed a virtual tsunami of accounting and reporting conflicts. Consequently the government implemented there own tsunami of new reporting requirements. Over the last several years accounting firms all across Canada were struggling and reorganizing to implement the new requirements. I heard it said that if a firm had 100 clients they can now only serve 75 of them, due to the new restrictions. Firms have been adding staff, combining firms and releasing clients frantically trying to conform. Their energy has been placed in conforming and not in being a client activist. With regards to service, unfortunately too many truckers are falling through the cracks.

For those who think the “change” may be over may I inform you its only BEGUN! With the advent of IFRS (International Financial Reporting Standards) Canadian accountants will be consumed by many more rigorous changes. IFRS represents one of the most dramatic changes the accounting profession has witnessed in a long time, maybe even ever! The difference between IFRS and Canadian GAAP are substantial and is scheduled for implementation in 2011. The “conformist industry” is about to become the most rigorously regulated in debit and credit history. Many truckers will be standing at the dock waving good buy to quality service. It does, however, represent an opportunity for those accountants who wish to specialize in lease/owner operators, construction contractors or some other niche.

It seems the only logical alternative to a highly regulated, wide sweeping, information intensive industry.

Vivi La Avant-garde!

Why accountants are conformists rather than activists? (part one)

I have a theory that’s not going to be very popular among accountants. They may agree in private but may contest in public. The theory is this “most accountants are conformists because the market pressures them to be activists”.

Accountants, especially designated ones, may be held financially liable in the event there is something wrong with an income tax return (or review/audit etc). The market (ie. clients) place pressure on accountants to report earnings/expenses in a format that may not (or will not) survive a CRA audit. Here are a couple examples:

Using a personal vehicle for business is a legitimate expense. However, if the person is self-employed they must keep a vehicle log which shows the personal to business ratio (how many business miles used compared to total miles logged). If 22% of the miles were traveled for business than 22% of the cost of operating the vehicle are expensed. Without a log of business to personal travel how is an accountant or auditor to know what percentage to expense? Every good accountant KNOWS this is the law! However, if an accountant tells a truck driver that he/she CAN’T expense anything on their vehicle without a log book most clients would walk out the office and seek an accountant who allows something (try and get a trucker to keep ANOTHER log book).

So the accountant has an ethical choice. What (in his mind, or in the mind of the average auditor) is a reasonable percentage or figure to expense? Thus the “self-deception” and market “disinformation” begins. The accountant has convinced themselves to become an income tax activist. They are cutting corners. Their internal conscience nags them that under audit they may well be taken to the cleaners. They are vulnerable and they know it. Therefore they become “conformists” by desperately trying to stay off the CRA “radar”.

Another example is the “non-use” of TL2’s for meal deductions. By now all well informed accountants know that self-employed operators require meal receipts as expenses. They are not allowed to use the TL2 any more. However, many calculate meal expenses using $51.00 per day and place the dollar figure in “8523” where the total of all meal receipts should to go. This means under audit, when asked for verifying receipts, there will be none. OPPS! No wonder many accountants are emotionally hiding under their desks at the thought of an auditor.

One more theory! “Compliance builds confidence, and confidence endorses boldness”. Do you want to know why I wrote my book the way I did? Or maybe why I write the way I do? My passion is justice and equality in a system of compliance not self induced cowardice.

Vivi La Avant-garde!

I don’t expect to be sent invitations to Christmas parties. Oh well!

The Ten Commandments of an Owner Operator in a troubled Economy

1. Never, Never, Never, Never, Never run out of cash. Do everything you can to build and keep four to six months worth of cash in a safe and liquid place. The new "tax free savings account" is a great place for some of it.

2. Get out of debt! Pay off as much as you possibly can, as fast as you possibly can without violating the first commandment. Simplify your life! If that means selling things... then sell! Nobody can eat a bass boat or a Harley!

3. The value of a truck is based on its fuel economy not its age or comfort. Your primary asset is you golden goose. It's what makes you money. Without violating the first two commandments make sure your truck holds and keeps its VALUE! If it gets terrible cash flow because of fuel consumption change your driving habits. If that dosn't help trade down (or maybe up), to a more fuel economy based assest, but remember you'll take a bath on the trade in.

4. Reducing speed and acceleration is critical to reducing both fuel and maintenance costs. Consume less and invest as little as possible. In a troubled economy there are loads of get rich quick schemes that entice people to SPEND rather than save. Be the smart one! Become more efficient rather than trying to break into a NEW market!

5. If you DON'T trust the company you work for, its probably too late to find a quality company that is hiring. Therefore make the best of what you got!

6. The key is compliance, don't speed, don't neglect your log book, follow the rules and don't cut corners. When money is scarce fines and penalties are often used to subsidise municipal/country/state/provincial budgets. They're out there gunning for you, stay off the radar!

7. If your not mechanically inclined TRUST your mechanic. The best way to embrace your mechanic is to PAY him! PAY your mechanic... PAY your mechanic! If you can't trust them find someone you can trust. If you don't trust anyone and your not mechanically inclined, get out of the business!

8. Work harder, sacrifice more, go the extra mile, serve your customers, create your own value, build your own life margin! and of course STOP COMPLAINING!

9. Build a network of support. Friends who encourage each other through tough times are priceless. Everyone needs support and encouragement. If you don't have one, start your network today! and I'm not referring to a multilevel marketing scheme... dah!

10. Invest your time in eduction. GROW, GROW, GROW! Think! Plan! Learn more about your craft than you've ever known before. It should cost virtually nothing to learn the most valuable things. Ask questions, knock on doors introduce yourself to new people and learn how to keep yourself afloat.

Beurocracy 101 and Compliance 101

Many years ago I went to a tractor pull. I’m not a huge fan but wanted to see what the noise was all about, and noisy it was! The dirt was flying and the fumes were fuming. For me, however, the real interesting part was the mechanism that the tractors pulled. For every yard the tractor pulled, the weight was shifted closer to the tractor (multiplying the effective resistance/friction). Finally the multiplication factor made it virtually impossible for the tractor to drag the weight. Even with the most powerful of tractors the gears and shifting burden will eventually make it impossible to continue.

Canada Revenue Agency is designed the same way. The primary goal of the agency is not to administer the income tax act justly and fairly but to manage the population of the country in such a way as to collect taxes from virtually everyone with the relative same degree of intensity. The more aggressive the citizen is in reducing taxes (apart from the norm) the more incremental burdening obstacles CRA shifts to the tax payer. It’s the “policies”, forms, requests and explanations that slowly weight down the citizen or actually it’s the accountant that gets weighted down.

Accounting firms constantly evaluate their clients compliance, punctuality and financial stability (including whether they pay their accounting fees or not). The clients compliance and punctuality are critical to the level of risk a firm is able or willing to absorb. For instance we rate each of our clients about twice a year for compliance to subsistence. If they fall short they are either encouraged to higher compliance or (eventually) we find them another accountant.
Using subsistence allowance is not for the slackers. The immense savings it provides comes with a cost, compliance. A word to accountants, if its used by your clients make sure they do it right, the last thing this opportunity needs is a rejection because of “non-compliance”. On the road the word would be the “entire opportunity” failed and the industry would battle disinformation for years.

Working within the CRA system requires clear definitions to avoid a continual tsunami of weight/restrictions.

Update on industry education projects

Today marks the final day of work on a project I have been exhausting myself on for over six months. We finally finished the studio production of “Making Your Miles Count: taxes, taxes, taxes” CD version. Included in this audio version is an additional chapter that updates users of subsistence allowance (and potential users) in several compliance and risk issues. Some people have been waiting for the CD for nearly eight months. Their patience is admirable, my time estimates grossly inadequate.

Slated on the horizon are two more audio projects that I hope to have available by spring. These projects are much less intense and much more informal. Their educational and entertainment value is my most pressing objective.

I don’t have the CD version available on our web sight yet but it should be up in a couple weeks. Those who wish to pre-order a set can do so by e-mail.

There will be several topics and projects I’ll be sharing in the next coupe weeks. One has to do with a report submitted to the taxpayer’s ombudsman. Those who regularly read this blog can look forward to it.

Leave it to Doctor Demming!

If you’ve been in the accounting industry for longer than 20 years you get to know the beurocratic system, both its strengths and weaknesses. CRA does NOT operate using the same business “rules” that the public is exposed to. In fact the rules that CRA plays by are: written by themselves, are written for their benefit, and is subject to change without consultation with the public (whom they are designed to “serve”). It can very well be a frustrating industry, not unlike trucking who must work with the DOT.

In the last twelve months our office has recorded a HUGE increase in CRA errors. Our numbers show triple digit increases. In our specific experience we have nailed it down to data entry. CRA has made significantly more data entry errors than we have EVER experienced before. We have attributed some of the errors to their “new system” which was launched early last year (ie. GST-ITC checks stopped due to late or incomplete data). I personally am not against the new system as it relates to late filers. In fact some aspects of the system I am very comfortable with. However, some things are getting out of hand.

Here is just one example. One of our clients sent in a check for $1400 in source deductions. The check cleared the bank with the appropriate deposit information on the reverse (Revenue Canada DID receive and deposit it). Under the “re” the appropriate RP number was clear. The appropriate amount was placed on the source deduction form (submitted). However, the amount was not applied to the source deduction account. In fact it didn’t appear ANYWHERE! In fact they are still looking for it. In talking with the client I have to communicate it will take 2-6 months to have CRA adjust it correctly. Meanwhile T4’s and T4 summaries are all submitted as “balanced” and yet CRA numbers disagree. Not until the file is given to someone who has authority to investigate and correct will it be rectified (hence the 2-6 months). Meanwhile the “request for payments” pile up, interst, penalties etc.

When CRA data keys errors the system operates as a punishment to innocent tax payers. The process of correcting CRA errors is brutal! As I stated, under most situations it takes four to six months to correct CRA blunders (or anyone’s blunders for that matter). That kind of correction would NEVER pass in the real world. The only reason it is tolerated is because of a lack of competition (maybe we can get Bosnia administer our taxes). Performance evaluation is balanced by a “systemic” approach to implementation, which means that the “system” comes first. Then, when and if there is time service!

Dr. Edward Demming is my hero (as anyone who reads my blogs knows). He states that people are restricted from excelling at their work because of the system! Bang on Dr.!

CRA's "WAYS"

I just finished my book on CD, which included a revised chapter on the national application and strategic plan for subsistence allowance. One aspect of the chapter discussed the historic (and not so historic) ways CRA “deals” with issues of possible conflict. I provided an example of a not so publicized situation where CRA had the “Moral High Road” in dealing with a tax issue. Instead of ethically dealing with the problem, CRA chose to lie, manipulate and harass citizens in blatantly illegal procedures. In the specific case I outlined, all that needed to be done was change a particular law (as it was written in the Income Tax Act). However, instead of closing a legal opportunity they chose to stalk and intimidate individuals into an economic stupor. It was (and is) a deeply sorrowful day for our Country.

However, it revealed the “mind” of CRA. Its power is derived from its ability to harass one specific individual (with virtually unlimited resources) until economic oblivion is achieved. It can also focus on a small or medium size group of citizens (ranging sometimes in the tens of thousands or hundreds of thousands).

Too often Canada Revenue Agency has been promoted as an entirely law abiding body of beurocrats. This, unfortunately, is not the case. When given an opportunity and a reason to abuse, they can be brutal. It reminds me once again of Silvio Berlusconi, the President of Italy who stated “when taxes are too high it is morally acceptable to evade them”. It is my solemn determination to avoid this type of national attitude. Too many accountants across Canada hear clients try and justify “tax evasion” every year. Granted, they do so because they feel they are being unjustly taxed. It’s not the taxation that motivates resentment and abuse but the “unjustness”. That is one of the primary reason I am an advocate of subsistence allowance. If properly and nationally implemented, subsistence may change our Countries anti-government sentiment (starting with truckers of course).

If CRA (with the Finance Ministers approval) focuses on shutting this just and non-discriminative opportunity down, I fear a much more vocal carnage may occur. Eventually, the only other option for equality may come in a flat tax (something I don’t view as entirely necessary at this time). A flat tax would eliminate the jobs of 50-70%+ of all auditors and CRA workers as well as accountants and tax lawyers (an efficient but not very popular move for sure). I trust the current Canadian leaders might see the ultimate outcome of the conflict, embrace justice and equality while refusing to comply with another tax scandal.

So far they have, in fact they have been more than just co-operative. But politics is politics….

Advice to the weary

Historically, being an operator produces 5-10% more net income than just being a driver. Taking in consideration the non taxable benefit of subsistence allowance however, would move the national averages up anywhere to 10-17%. These numbers are significant and could well produce a shift from company driver to company operator. In this turbulent time this tendency may harm uninformed drivers.

I would hazard a guess, however, the 10-17% will not be a national average this year (or even last) as too many operators are sacrificing their own salaries to sustain their business. “Fortunately” (and also sadly) the glaring tax benefits are offset by the sight of operators dropping like flies. However, those who are surviving, and even thriving will continue to maximize non-taxable benefits.

In these turbulent times, understanding supply and demand is critical to sound business practices. Operators changing companies over a cup of coffee must become a thing of the past. In tough times, providing a high level of service creates your own demand and company loyalty. It is critical to operator’s success in an economic downturn. Those who too quickly jump from ship to ship will eventually fall into the water and drown, its inevitable, especially in a recession.

As early as September of 2007 I started telling my clients to “buckle down” and don’t make waves, create value within your company. My advice now is, “if you are at all making a living, no matter how uncomfortable, stick it out!”. The lower grade companies, dealing with lower grade customers and lower grade operators will soon fall by the wayside. You don’t want to be licensed on one of those during a recession.

Take it easy, count your blessings, save your pennies, take advantage of every savings when you can.

My dilemma with the Employer Employee Agreement

It is my firm belief that the fulcrum to subsistence allowance is the employer employee agreement. Without an adequate EEA CRA may try and find legal grounds to overturn its inherent equality.

Therefore I am in a deep personal conflict. I wish to see thousands of operators use subsistence allowance within three to five years. However, one of the success factors needed is the compliant application of the EEA. Without adequate control over the application I may be placing the national acceptance in jeopardy. Providing a perfectly acceptable EEA to someone who doesn’t apply it properly may be placing the entire industry at risk. So what do I do? … its not a rhetorical question… it’s an actual question….

I’ll tell you what I’ve done SO FAR. I have provided a general EEA to our firm’s clients. I then monitor (yes even demand) proper application of it. If a client shows that they are not interested in compliance I remove them from its application (and usually our firm). Why should non-compliant people receive the same non-taxable benefits as compliant people? I don’t know… maybe I’m a control freak!

For the good of the entire industry and future application of the allowance, I am of the opinion (at least right now) I must retain control of the EEA. I am willing to go to the Supreme Court defending the systems integrity but not without assurance the application is reasonably applied.
I am reminded of the tax court judge that presided over the Don Wilkerson court case. The critical quote was “… these kinds of aberrations cannot occur…”. It was clear that the tax court will not stand for injustice, inequality and aberrations. However, we don’t want to present an ethical argument without any regards to compliance. In my opinion the application of the EEA must be applied nationally, the more consistent the better. I think that firms that have been using subsistence would agree with me.

Come on! Let's hear it for equality!

In my research on the application of subsistence to lease/owner operators I have found several firms that use it. However, none have done any public advertising because they seem to be intimidated by Canada Revenue Agency. In their defense CRA is not an easy book to read and not an exact science to practice. They appear to “let things go” and “draw the line” indiscriminately. Sometimes exposing a court case that proves them wrong only seems to delay their tactics rather than stop them.

Too many Canadians believe that CRA audit assessments or re-assessments are based entirely on the Income tax laws as supported by tax court rulings. Unfortunately they are not! They are too often formulated as a geographic application or interpretation. Sometimes one or a group of auditors take on a particular issue with an “end justifies the means” mentality. With the “ends” being tax revenue and the “means” being ignoring of court rulings. For example: I have a case right now on my desk where a T4’d executive (who was re-assessed for a particular tax year) filed a notice of objection against the assessment. Several months after filing it, suddenly the executive’s employer received a garnishment order. I personally presided over a phone call to the auditor assigned to the file. The garnishment immediately was repealed (no apology or explanation). It was repealed because I mentioned the “Notice of Objection”. The auditor acknowledged the filing on their data base and then immediately faxed the retraction. This is NOT an isolated case, in certain instances they are routine. The point is, CRA knew of the notice but ignored the legal requirement to suspend all collections until they were advised (by the citizen) that they (the citizen) knew of their rights under the law. Once it was clear the citizen knew the law, CRA obeyed it. It appears that the phrase “ignorance of the law is of no avail” only applies to citizens not to the government.

This is just one reason why most accountants (if they use subsistence) try and operate “beneath the radar”. They don’t want to be on the phone all day arguing with agents quoting court cases and being harrased with illegal and ignorant actions. I sympathize with them! It’s not a cake walk, especially if an accountant has to work for a living as well. CRA seems to have all the time and money! BUMMER!

This is an open invitation for accountants to ask for assistance in the application and defense of subsistence allowance. If this opportunity is ever to catch on, accountants have to feel comfortable with their application and know how to (or have someone) defend it. In my opinion the strongest means of defending subsistence is compliance and publicity. It’s kind of hard to garnish popularity when one profession is shy to publicize. Come on guys and gals, let’s hear it!

Not Exactly Chump Change

Once an employer–employee agreement has been finalized (I recommend having the agreement placed in the minute book of the corporation) the new employee (driver) takes the keys and starts driving.

After a month he/she receives their first salary check. They also calculate the days gone multiplying it with the current treasury board figures (both Canada and US, adding exchange of course). The total is calculated and submitted to the corporation for payment. Let’s work through an example:

12 days in Canada
81.55 x 12 = $978.60

11 days in the US
81.55 x 125% = $1,121.31

Total nontaxable benefit to driver $2,099.91
GST ITC for company $46.60 ($978.60 x .047619 equals $46.60)

Total expense for the corporation $2099.91 – $46.60 equals $2,053.31

Remember this estimated re-imbursement for job related costs are not subject to and reduction (such as the 50% rule or the soon to be 80% rule). They do not fall under the meals and entertainment category as does expense accounts for salesmen (who entertain). It is a write off identical in principle and format to the treasury board of Canada’s travel directive Appendix B module 1,2, and 3.

So lets re-cap! A driver who drives 23 days gets 2099.91 tax free (tax savings of $735.xx, not including CPP) and the corporation receives a check of $46.60 in ITC’s). If a driver (who also owns the company) does this eleven months of the corporate year the combination of corporate and personal tax savings will be $8,597.60 (not including CPP savings). Not exactly chump change.

So, why aren’t accountants jumping all over this? Because its not how they’ve always done it. If they start changing how they do it, CRA may ask questions. Questions they are shy to answer. It’s not that the questions don’t have answers (and good ones) its just most accountants don’t want to talk to CRA unless they absolutely HAVE TO!

Employer Employee Agreements... Continued

I watched four or so hours of debates on the floor of the house of commons yesturday. One member would make a glaring accusation, only for the other party to make a completely opposite accusation about figures and numbers in the same document. To a person with common sense its obvious someone (or both) HAD to be lying... but nobody demanded verification of the claims....

It reminded me once agian that its always best to drink water from upstream of the herd.

Well now that the Conservative budget was passed by the Liberals… no wait!..

The Liberal budget passed by the Conservatives…..................... no…

The Conservative budget passed by… NO NO NO!

It’s the Liberal budget passed by… no… ratified by…………… aw!

y7tu6hrigkjbn! j7tu6hrigkjbn! (Head banging on keyboard)

Forget it! I’m going to the nearest carnival to ride the zipper and tea cup to regain my equilibrium.


Let's get back to trucking shall we?

The critical qualification of using subsistence allowance is the Employer Employee Agreement (EEA). If the designers agree, it can become a very creative application. Let's compare how flexible it is to the current system.

Another controvercy over the lunch bag let down is the application of the TL2. "Qualification" for the 50-80% increase is restricted to drivers who travel more than 160KM from their municipality and also gone over night (24 hours). However, in an employer-employee agreement operators can ignor those type of restrictions because that has to do with forms that apply to another system. Travel status qualification can start immediately when an employee marks "on duty" in their log book. That means if they leave before breakfast... they qualify to be paid for it! I know its a novel appoach that hasn't been applied to the trucking industry for decades but I think it may just catch on... don't you think? So not only is the system fair and just in its numbers it can be just and fair in application as well.

EEA's are also customizable! An EEA can add or remove specific features applicable to a specific job. The most important thing to remember is that it must be "reasonable". Let's remember that the definition of "reasonsble" is defined and mandated by CRA not by the public.

The simplest way to determine what is reasonable is answering this question: Has CRA accepted the application before? For instance, when a government auditor leaves home before 8am they qualify for breakfast, otherwise they don't qualify for subsistence until noon. Therefore, according to the Charter of rights and freedoms (equality or non-descrimination), because CRA allows one group to define travel status this way all other agreements may be taylored with this type of detail.

I can't caution operators enough, it must be reasonable! The application of subsistence allowance is NOT, and should not be considered a blank check. All I am promoting is a fair, just and equality based tax system, nothing more... nothing less!

Decades ago most drivers received a meal allowance from their employors but for "closed door" reasons trucking companies stopped paying it.

So lets get back to it... literally!

The Employer-Employee Agreement

There is much more to huge tax savings than just incorporating. Too many operators and accountants stop short. When that happens accountants fill out a Corporate T2 using the exact same numbers as if the client was self employed. If this is your situation, don't bother incorporating.

The next step HAS TO BE an employer-employee agreement (EEA).


The EEA is a contract, a legally binding document that the courts and labor boards enforce. Historically EEA's have been made between unions and management or just by companies looking to recruit people. Some agreements are standard and applies to all employees while others are custom, provideing benefits to one group, individual or position over another.


An EEA that truckers regularly utilize is the "Cell phone requirement". Many companies require that a driver provide their own cell phone in order to perform their duties. CRA allows drivers to use their cell phone as a deduction provided that it was a written condition of employment. This "condition of employment" is actually an employer-employee agreement. It is a small simple agreement but operates under the exact same principle as a complex EEA inclusive of subsistence allowance.


The details of an EEA can be as varied as employees and positions. They can be as restrictive or liberal as creative minds produce. However, there are limitations as to what can be classified as a non-taxible benefit. For instance, subsistence allowance allowance can't be set at $500 per day (without defending the value). Whatever value is assigned as a "non-taxable benefit" must be deemed reasonable. CRA is mandated the responsibility to determine what is reasonable and what is not.

There are pipeline workers, for instance, that are apparently getting $95 per day living allowance (subsistence), even though the treasury board of Canada only has its numbers at $81.55 (as of October 1, 2008). If this is true, the extra $13.45 must be defendable in the tax courts (if CRA would contest). For the trucking industry, however, I am only interested in pegging subsistenace allowance at Treasury Board numbers.


I think I'll take another day to go a little more in detail about this topic. For right now, however, It would be prudent to state that the EEA is hammered out between the "President" (officer) of the corporation and the driver. If both roles are filled by the same person it can feel rather schizophrenic.

Employees Only

If you have been reading this blog for an extended period of time you have somewhat of a history behind the opportunity for Canadian operators. So lets get down to some of the details for those who have been patient enough to keep tabs on this sight.

There are three steps to qualifying for subsistence allowance. The first qualification is that only employees can collect. The second is that the employee must have an employer-employee agreement. Then finally the agreement must be followed. It sounds obvious and simple but the steps are somewhat confusing at times and can appear schizophrenic to the seasoned self-employed operator.

Let’s look at the first step. Employees only can collect. Simply put, self employed people can never have an agreement “with themselves” that transfers estimated expenses into non-taxable benefits. Therefore the only way to have an employer-employee agreement is by incorporating. Based on over 125 years of corporate precedent, separation can be achieved by incorporation. The shareholder appoints a director, the director hires a president the assets would be sold to the corporation and the president interviews a driver for the position. Our legal system recognizes each role as a separate position even though each role can be occupied by the same person. The average person thinks the system is schizophrenic (and they may be right) but this is how its been done for over a century.

The employer employee agreement, what I’ll write about next week, is wrestled through between the president and the driver. Incidentally, if you hold the position of: shareholder, director, officer (president) and driver… you can still only use one log book.

Canada's Inauguration

What greater illustration of new beginnings than an inauguration? The swearing in of a new President, even though it’s not Canadian it is still an exciting event. Starting a new government administration may not actually be the right wording. It probably should be described as a “DIFFERENT” administration rather than a “NEW” administration. There are still the same offices, roles and their respective responsibilities. Even taking a look at his “new” cabinet reflects recognizable faces. I’m not saying that’s good or bad but its not “NEW”… just different. The US government will still operate with the same general speed and restrictions as it has over the past 220+ years.

Changing an administration affects a change of perspective, tolerance or “policy” and generally not much more. The beurocracy will remain similar to what it has been in the past. If the leader of our southern ally wishes to change the beurocracy I suggest it'll take a time frame that exceeds the maximum allowable eight Presidential years. Bureaucracies run independent of administrations. They shouldn’t, but they do. Even Ancient Rome, the founder of democracy, had that problem. Regardless, I wish our neighbors the best. Their balance sheet needs all the encouragement it can get.

The global economy is truly amazing. The only real restriction to free world economy is government intervention. It’s the axe that hacks at Adam Smith’s invisible hand. It’s also what downgrades “NEW” to just “different”. They have taken on more than just national defense and enforcement of the law, they have assumed the care of our elderly all the way to the education of our young. They have taken our income and distributed it as they interpret the need. Unfortunately, society has placed their faith in government to solve all life’s ailments. To place faith and control in the hands of any government is to relinquish our personal rights and freedoms to a beurocratic system. Eventually we may vote away our own lives.

On this solemn yet jubilant occasion let us all remember individual rights and responsibilities are still inherent in each person. Justice and equality will never come from government but from the collective conscience of each person. Tyranny, oppression and injustice will always come from the collective complacency and cowardice of each citizen.

With that said I desire, in this year, to unite as many trucking industry readers as can be collected around a new “administrative system” that produces more justice and equality than Canada’s beurocratic tax system has ever distributed. There is a clear political window of opportunity that each trucker should understand and take advantage of. Now is the time for the Canadian tax system to be pushed back from its historic roots of prejudice and intolerance towards the hard working citizen. Subsistence allowance is here to stay!

The Busiest Day of the Year...

Welcome to the busiest day of the year for an accounting firm. If a firm deals with self-employed operators only the busiest day would be April 30th (for checks to be mailed for CRA) or June 15th (for returns to be mailed), but for those firms who work with operators with corporations (due to subsistence allowance) today is their day of “madness” (not really if one is organized and didn’t procrastinate).

An operator that is incorporated should send regular source deductions in for their salary. However, once the year end is completed, the income from the corporation should be transferred to the owner/president through what is called “management fees”. The source deductions for management fees claimed December 31 is due January 15th (hence the busy day).

As I stated in my book, the majority of operators who drive one truck (their own corporation’s truck) should almost always claim the income personally. The corporation should not be claiming any income (actually about 80% of all privately held Canadian corporations claim zero income). This is because the combination of corporate income tax and dividends tax is greater than if the operator claimed everything personally (unless the t4 would be more than $63-65,000 per year). If it is above that amount the new tax bracket would propel the operator into a tax range that it would make sense to pay corporate tax then dividend tax. Since the vast majority of all operators would not fall into that category (especially if the operator is collecting subsistence allowance and has a spouse who is a shareholder/director/officer and can receive a $63-65k t4 as well). One truck whose operator is collecting subsistence will rarely make more than $65K. National averages are $50-55K before subsistence (which knocks off an additional $15k).

If your accountant starts spouting off “dividends” when your t4 is less than $65K start asking questions!

CRA-GST-ITC and other four letter words

There is a section in chapter eight of my book called CRA-GST-ITC and other four letter words. It describes a potential liability issue hanging between Lease/Owner operators and Trucking companies. The example I used has the potential to affect up to 40% of operators. The chapter explains the instigators are hard to determine but the potential outcome may still be disastrous for operators. The liability to operators is completely at the mercy of the trucking companies. The book further emphasizes the critical need to trust the company you work for.

GST is a simple application. However, the application of the tax is still not consistent across Canada. For instance, most trucking companies deduct GST off operator’s settlements while some do not. As in this case the inconsistent application of GST can be hazardous to the company. The practice of not deducting GST off settlements is rare. I would put it at less than 1% and in this case the “potential liability” may rest on the company rather than the operator. It’s not that they are doing things unethical it’s just not how the GST ACT is (and has been) written, interpreted and applied.

If you are an operator with a company that does not deduct GST... DON”T WORRY! You are safe and well within your rights not to claim the GST ITC’s. Even though over 95% of other companies do deduct the GST, your “employer” did not set things up to shaft you.

After a close and careful look at the thought process to either apply GST or not, one must only conclude that the company chose not apply it for honest and ethical reasons. There is no sense in charging GST to someone who only goes out and claims it back immediately. That is a logical and prudent interpretation of business activity. However, as we know, CRA is neither logical nor prudent. The entire GST application is designed to apply tax to as many applications as possible.
There was a small example I used in my book where CRA tried to apply GST to a deduction that a company took off operators settlements. It was a “lump sum” wage for a driver(s). It would have sent hundreds of thousands of dollars to Revenue Canada, only for operators to fill out their pretty pink form and get it back three months later. I think the idea sprung from the “Department of redundancy department”. The trucking company shuffled their numbers around and just ended up paying less to operators who used company drivers, thus doing an end run around the application (smart guys!)

However, the question still remains, why does CRA apply GST to as many things as possible? Simple, so they can have the opportunity for operators to overlook rebates or for CRA to refuse ITC’s in an audit. Apply as much GST to everything, then see how much can be “dis-allowed”.
GST was never intended to be a burden on businesses… but its ending up that way.

Origins of Truckers Subsistence Allowance

I have conducted hundreds of interviews and dozens of seminars. Many times in the process I have been confronted with the concept of “origins of subsistence allowance”. Many people ask a very good question “If it is such a great opportunity how come so few truckers are doing it?”.
First of all I’d like to say that CRA does not publish “tax tips” big or small. They generally only release information that reflects their internal policies, such as compliance, restrictions and general assistance on preparation (some exceptions apply).
The accounting industry then, is responsible for providing individual tax service for citizens. Companies like H&R Block, Liberty tax as well as a host of other franchises compete with T1 preparers coast to coast, most claiming the best value.
For the more complex returns, accounting firms also should be providing services on navigating the many options and opportunities. Professional preparers are responsible for finding and presenting the best tax opportunities available. With respect, the Tsunami like changes in the accounting industry has left professionals swamped with new regulations, restrictions and obstructions to service. An industry that “doesn’t like change” is overwhelmed with turmoil and backlog. However, that’s their excuse today but it provides no defense prior to approximately 2000-2002. Simply put, accountants (myself included) up until several years ago simply never thought outside the box.
The second thing I’d like to confirm is that I’m not working as a historian. Even in my book I resisted a detailed exposure of certain facts. So as to resist pointing the blame, I still prefer to restrict some information to the general public. I believe blame (sometimes) leads to retaliation and revenge. In history, revenge is the antithesis of justice and equality. In my opinion, it would be counter productive. However, the information I now share should not foster revenge but co-operation and collaboration.
Back in 1991 a trucking company was working for and with a pipeline company with varied contracts and results. They had a high GST return then low and visa versa. The fluctuation flagged an audit. The auditor (apparently a very helpful one) scoured through the books and found out why and was satisfied. The audit produced no re-assessments, all things were done well. The jolly (and apparently robust) auditor asked why the company wasn’t claiming the GST on the flat rate meal allowance and accommodation allowance provided the pipeline workers (ranging from $95 to $125 dollars per day). He conveniently calculated the amount to $143,000 (expensed at about $2 million). To state that the auditor was helpful is a six figure understatement.
One of the consultants who were working for the company at the time (Lucien Bleau) had a long chat with the auditor. In the end, the auditor informed Mr. Bleau that there is nothing stopping the trucking industry from providing the allowance to drivers, and collecting back the ITC (GST Memoranda 400-3-11 and 400-3-3). The resultant opportunity was exposed.
According to my limited research and knowledge this is the roots of the opportunity. However, tracking the initial exposure to present is like finding the tail end to a bowl of spaghetti. There appears to be a lot of start and stops. If I start to mention names and companies I run the risk of including or excluding a whole lot of people. Since I’m not interested in hurting anyone’s feelings I’ll keep it to one name… Lucien Bleau, the man many operators owe a cup of coffee or more. He was at the right place at the right time and asked the right questions. The CRA agent (who will truly remain anonymous) is owed a multi-million dollar thank you.

To Clear Muddy Intentions

After WWII the Pentagon was stuck in a mindset of potential nuclear destruction. Destroy or be destroyed. The philosophy initially came from the Allies desperate need to triumph over the evil Axes, which was followed by the desire to contain Russia’s launch to dominate the world with nuclear arsenals. It appeared the Pentagon had no choice but to adopt the “dam or be dammed”.
Then along came a man named Henry Kissinger, a man of exceptional understanding, countering the global philosophy with the concept of “limited nuclear war” (among other subsequent beliefs). It was a controversial yet brilliant change of global thinking (at least the pre-scandal portion was). Instead of seeking to destroy the opponent entirely, he proposed to place a series of options that restrict and direct, all the while trying to retain his opponents pride and dignity (even though force may be used). It was a concept of collaboration with your enemies rather than trying to obliterate them.
The West never (or rarely) compromised the notion of Freedom. The West tried to hold firm to the destiny that man was to walk in freedom. They would not tolerate domination, fear and oppression (at least publicly… not withstanding Cambodia-type ventures). This concept of collaboration without compromise appeared to be an oxymoron. Mr. Kissinger’s life work proved that belief to be at least partially wrong (there is nothing like a major controversy as an illustration to further muddy… muddy meanings).
To some who have read my book, and viewed this blog, I have appeared as “destroy or be destroyed”. However, I wish to continue the sliver of honorable intentions Mr. Kissinger proposed in his “collaboration without compromise”. I believe, and can see, the universal application of subsistence allowance as a great leap for the trucking industry, CRA, and maybe even Canada as a whole. Properly implemented it could affect the average citizen’s view of the entire Canadian income tax system (maybe even something that could moderate the national contempt for our government). It’s certainly not a cure all, but I believe it can follow in the noble footsteps of its predecessor “The Federal Accountability Act”.
My goal is not to annihilate, punish or even aggravate CRA, only to bring clarification on their mandate, and to expose their responsibility for integrity and justice.
Today, somewhere in the rage of 80-90% of operators are still self-employed. I believe within 3-5 years that amount should be 50-70% incorporated. I am also determined to ensure those who do incorporate for the benefit of subsistence allowance to do so with the clear intent of compliance to the rules.
I will continue with my mission to directly educate some 25-35,000 operators as well as some 300,000+ drivers nationally. Subsistence allowance is only the first rung on a very long ladder. Some time this summer I will be introducing my second major topic and subsequent book (to be released some time in 2010) so stay tuned.