In the spring of 2007 my book “Taxes, Taxes, Taxes” was published. It described the two very different tax reporting systems available to Canadian Independent Operators (Non-taxable benefits and TL2 simplified method). It explained why Operators should incorporate (use non-taxable benefits) and ABANDON the TL2 system. Incorporation is the first of several steps needed. CRA (Canada Revenue Agency) and the trucking industry just released a statement announcing the increase from $51.00 to $69.00 per day of meal allowance (for the TL2 guidelines). However, Operators who use the NTB system should understand this does not apply to them; it is an entirely different tax reporting system. As the judge in the pre-2006 class action lawsuit stated, “it’s like comparing apples to monkeys” (a quote from the transcript in my book). A 36-year comparison chart showing the 800+% after tax difference between the two systems is displayed on our website (makingyourmilescount.com/research/).
The TL2 simplified method originated with the railroad employees and trucking was included back when Canada was preparing for NAFTA (early 1980’s). Prior to that time, the entire trucking industry used NTB. If you are interested, ask someone who drove back then. They got one paycheck for miles (taxable) and another for meals (non-taxable). The rules and amounts available for each system are NOT interchangeable. One of the most frustrating things about being the “expert” in the industry on this issue is seeing how Operators and accountants quote a rule from one system and imply its applicability to the other. It is like swapping injectors with spark plugs or putting diesel fuel into your Toyota Corolla… it will not work!
Historically the TL2 was used for both Company Drivers and Operators successfully until October 2006. At that time, 25 trucks from Moncton NB were audited and CRA quoted IC73-21R9 which requires both the employer and employee to sign the TL2 (Jim Park of Highway Star first wrote about this). Almost immediately, accountants began demanding Operators keep meal receipts. However, within 2-4 years many accountants (on fear of losing clients) began using the TL2 again. Now, across Canada, you will get some accountants that still require receipts while others use the TL2. Depending on where you are in Canada (and sometimes when), auditors may train Operators how to use the TL2 while others will refuse its application (quoting the IC73-21R9). The TL2’s for an Independent Operator is a very controversial issue in Canada.
Company Drivers using the new TL2 numbers will get additional tax savings. However, the $51 or $69 per day is not an actual deposit amount. Drivers should already know that if they drove 200 days in 2019, they did not get a check for $10,200 ($51 x 200). The $51 (now $68) is only ONE of the INPUT FIGURES in the personal income tax return. The net AFTER TAX figure of $51 was $13.60 per day (best province) and this is categorized as a “non-refundable tax credit” (not necessarily a cash-able check). If a driver did not contribute enough on their income tax remittances during the year, they will NOT get the whole credit (rare but does happen). It is a NON-REFUNDABLE credit.
In 2020, the $69 will represent $18.40 per day or an increase of $4.80 (average of $1176 per year). Without a doubt, the 35% increase is respectable and well deserved. However, it has been overdue for nearly a decade. We must remember that the TL2 is dependent on the government for all its raises. Whether it is the $51 to $69 raise or the gradual deduct-ability increase given between 2007-2011 (50%-80%), it needs lobbying or some form of political pressure. The TL2 is also subject to political hacking. For instance, in 1992 the finance minister stated “…there are some industries that are not paying their fair share of taxes…” and promptly lowered the deductibility from 80% down to 50% (which was later politically reversed in 2007). So, the TL2 is subject to the winds of political emotions. Up one decade, down the next. It appears the TL2 simplified method requires continual political lobbying to keep its head above water (or at least close to the surface).
The non-taxable benefit system needs NO lobbying. It may need a qualified accountant to defend against CRA reassessments, but that is a very different requirement than political lobbying. If anyone uses NTB they should have a guarantee associated with the tax savings (from the firm preparing the return). Without a guarantee I would not recommend using the system, the liability is just too great.
The NTB SAVINGS is over $11,000 per year ABOVE the savings from the new 2020 TL2 rates (if your fortunate enough to have auditors in your area NOT quote the IC73-21R9… if they do, the savings is even more).
The NTB system uses completely different numbers, formulas, and restrictions. For instance, if a driver has access to a “…self-contained living establishment…” (home) for the night, the employer’s deductible amount is reduced by 25%. There are no such rules for the TL2. The system is not that difficult to learn, though it takes a few months to become comfortable with it.
The NTB system also comes with seven clear disadvantages, each of which should be understood before going through the lengthy process. Each disadvantage has a specific fix, but it requires knowledge and training to eliminate them.
If you use NTB (like I recommended Operators do in my first book), the raise from $51 to $69 from CRA guidelines is irrelevant. It does not apply to you! You have your own rates, and (properly administered), you would have already received your semi-annual raise on both April 1st and now October 1st, 2020. Training you is up to your accountant. If they congratulate you on your allowance raise from $51 to $68 you are DEFINITELY NOT using NTB. I suggest you roll up your sleeves and do your research. You need to find someone who administers it properly and with a guarantee. $10,000 to $12,000 per year in tax savings is too much to ignore.
Therefore, if you are fully utilizing what the Canadian tax system offers, the raise from $51.00 to $69.00 provides you with nothing, zip, nada…butt-kiss. It is irrelevant to you, a distraction. It is chump change savings compared to the mother lode in NTB. Next month I will go into more detail on the NTB system and why (unfortunately) you’re probably not using it.
About the Author:
Robert D. Scheper is a leading Accountant and Consultant to the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His firm exclusively serves Lease/Owner Operators across Canada. His second book “Choosing a Trucking company” is the most in-depth analysis of the operator industry available today. He has a Master degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.
You can find him and his books at www.makingyourmilescount.com or 1-877-987-9787. You can also e-mail him at firstname.lastname@example.org.
Robert D Scheper operates an accounting and consulting firm in Steinbach, Manitoba. He has a Masters Degree in Business Administration and is the author of the Book “Making Your Miles Count: taxes, taxes, taxes” (now available on CD). You can find him at www.thrconsulting.ca and thrconsulting.blogspot.com or at 1-877-987-9787. You can e-mail him at: email@example.com.