In the past, I have written and provided videos of my opinion of the “Driver Inc.” issue (now known as Incorporated Drivers). Given a personal choice, I would almost always advise a driver to NOT incorporate… primarily because when it goes through the court system, those who have used it will probably suffer a loss. They also lose the employer contributions to CPP and various labour entitlements associated with standard employment methods.
NOTE: In no way is my opinion of suffering loss “legal advice”, but at the same time, CTA’s advice shouldn’t be considered “legal advice” either. In the end, the judge will be the judge.
That being said, why would drivers do it? Why would a driver agree to not have any government protection and provision? I think the simple answer is to avoid taxes and programs that drivers may have learned to despise. You know the programs I’m talking about, right? Those programs which we send thousands of dollars to annually so that we can thank Ottawa for “returning” $180.00. Has anyone processed a workplace injury claim lately? How about (as a truck driver) applying for EI? Finally, and certainly not the least in the argument, is the Canada Pension Plan “benefits”.
In 2023, CPP contributions have finally tipped the scales into a negative ROI. The increase in both percentage and maximum contribution, while not reflecting that increase in the benefit itself, is too much to ignore. Contributors who pay both sides of the program (employer and employee) will be paying more into the program than what they will be getting in return (a few variations depending on how close to retirement you are).
Those who wish to be an incorporated driver are not doing it to be “taken advantage of” but to take advantage by opting out of perceived wasteful and low-value, high-cost federal and provincial government programs (EI, CPP Workplace safety/injury). A single driver, instead of paying for all these programs, may simply collect dividends. No, they can’t offset dividends with RRSPs… but they don’t always have to. If they pay corporate taxes… dividends (+ dividend taxes) it just flows through to the owner(s). So, they don’t have a typical standard business model… big deal! If this is allowed by the courts… many who run the numbers and risk factors may also be opting out of T4 earnings and end up partially/mostly off the government tax grid.
Last month a new lobby group was presented: Canada Truck Operators Association (CTOA) which was (in part) formed to stand against the CTA’s push against Incorporated Drivers. Whether the CTOA will be successful or not in their stand of support for Incorporated Drivers will be left to be seen. Besides the Incorporated Drivers issue… CTA needs some sound competition in their lobbying practices. Competition is always good. No matter what the outcome is, I applaud their strong independent stand against useless government programs and for providing another voice for the industry.
I represent hundreds and hundreds of independent operators, who pay both employer and employee CPP… this is the first year I will be advising SOME operators near retirement to consider starting to pay dividends rather than CPP taxed T4 wages. I will advise them to take what they would have contributed to CPP and invest in TFSAs or even simple mutual funds in their corporations.
If these funds would average an 8.5% return, after ten years of contributing, they will have just as much investment income as what their CPP would be giving (amounts may vary depending on age, CPP history etc.). The best advantage is, when you die, the fund will still be YOUR asset… it doesn’t disappear when you die.
Maximum personal contribution per person is $3,479.60 (x2 for employer portion=$6,959.20) and that would be $579.93 per month (let’s round it to $550). Contributing $550 per month to a mutual fund averaging 8.5% over 10 years would give $100k plus change. Then you can stop contributing and take out $800 per month for 30 years or $735 indefinitely… and retain your original $100k. Now that’s a decent ROI… with no government interference.
The moment CPP went to a negative contribution return I viewed it as a tax… and not a retirement plan/program. Why would I voluntarily pay more taxes when I don’t have to? I’ve contributed enough thank you…
I’ll simply choose another option.
I don’t view Incorporated Drivers as “illegals”. I view them as those who have decided to fend off unwanted government programs and limitations. They have adopted a personal money management and risk model that excludes federal and provincial government programs.
Rearranging your financial, risk and business model is an ongoing exercise. I’ve run the numbers for various contributors with various histories of contributions. The numbers are not all the same; it very much depends on how close to retirement you are. Have a financial advisor run the numbers specifically for your history. Remember a few things… CPP benefits are immune to bankruptcy but not immune to CRA confiscation. This choice is very personal and very individualistic. Don’t just do what your neighbour does… make your own choice.
About the Author:
Robert D. Scheper is a leading Accountant and Consultant exclusively serving 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 second book “Choosing a Trucking company” is the most in-depth analysis of the independent operator industry today. He has a Master’s 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 at www.makingyourmilescount.com or 1-877-987-9787.
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: firstname.lastname@example.org.