Last month I went into the history of the TL2 simplified method and how it applies to Company Drivers, but I then explained why Independent Operators should be using Non-Taxable Benefits. The “raise” provided to the TL2 filers ($51 to $69 daily meal allowance) should NOT be a topic of interest to Independent Operators. If your accountant talks about your “raise”, you are obviously still using the TL2… and, (according to my book), you are paying way too much in taxes. Hopefully, I can assist you in setting yourself up properly. Just look at the after-tax research comparisons (makingyourmilescount.com/research/).
I have written well over a hundred articles for Over the Road Magazine since I began in 2008. The first few years I focused almost exclusively on this topic. However, after several years I found that writing about the same subject repeatedly got a little redundant. At some point in 2015 I wrote a lot about my second book: “Choosing a Trucking Company”. It now appears that the topic of my first book is back in style. I can guarantee you; it has more benefit than the return of bell bottoms.
I clearly remember the day I calculated the net difference between the TL2 and Non-Taxable Benefits. It was about 5:30 in the morning, I was writing my first book and needed the total dollar difference between the two systems. I then multiplied it with the estimated number of Independent Operators in Canada, and it came to over $100 million a year. I was stunned. I felt prickles flowing from the top of my head to my toes. I could not believe that nobody was doing the Non-taxable benefits. I also assumed that once the book came out everyone would use it and the industry would change forever. It was so overwhelming to me that I took a few days off to let it sink in. At the time, I could not understand why accountants were not using it.
That was over 16 years ago – 13 since my book came out and I am still amazed that so many Operators (and even accountants) still know nothing about it. I find that I have to explain it to about half of our new clients (the others are referrals who learned about it from one of our existing clients).
I believe there are several reasons why it has not taken off as it should have. First, most Operators blindly trust their accountants to know everything they should about the trucking industry and what system works best for Operators. Unfortunately, those who prepare tax returns do not research the Independent Operator industry because it represents a labor-intensive, low margin tax return with lots of work and only limited fees that can be billed. Operators are not a priority customer. Most accountants usually delegate the Independent Operator to an assistant who only knows one way of preparing the return… the way everyone else does it; the TL2 simplified method (or counting receipts).
When my book came out it introduced incorporation as the first step to using NTB (big tax savings). When Operators began asking about incorporation, accountants used a standard answer applicable to most other industries. They said “…you don’t get any benefit from incorporating until you earn more than $60,000 per year…”. These types of answers only exposed the accountant’s total ignorance of NTB. However, more and more Operators kept asking for the incorporated method, so accountants (not wanting to lose clients) started preparing incorporated returns (justifying it by being able to use the TL2). The net tax savings of the TL2 over actual meal receipts is moderate… maybe enough to pay for the higher accounting fees charged for a corporate return, but not much more.
I have talked with many accountants from coast to coast in the last 10+ years. I have explained the system many times and always ask if they will use it. The answer was usually a qualified no. Most would not or could not defend it to CRA. The revenue to their firm was just too low for the liability they needed to defend. This answer was reasonable. They could not see themselves charging more than $2,500 without losing the client so the liability of defending a $12,000+ reassessment was just too expensive and complicated.
However, some firms were not as reasonable. They used the TL2 simplified method and then stated it was the best that could be done (ignoring that the NTB system even existed). However, the worst firms would go ahead and use Non-taxable Benefits but would not guarantee the returns. So, in effect, an Operator may get the tax savings but only until they were audited. The minute CRA would reassess, they were on their own (or paying a huge legal/defense fee, that may be more than the tax bill itself).
There is one other reason that accountants did not change to NTB; it was just too complicated. The compliance to NTB is just as dependent on the Operator as it is on the accountant. There are specific forms to file and verification with an employer/ employee agreement to be administered. The Operator must also manage his cash flow to reflect the agreement. If the Operator does not follow the rules it can be viewed as non-compliance and CRA can reassess the return. So, the accountant MUST train the Operator to comply.
Its complication is, on average, 2-2.5 times the work for an accountant as is the self-employed return. That additional time does not count the time needed to train the Independent Operators. Most accountants have neither the time, inclination nor resources to train Operators on how to manage cash flow month by month according to an employee agreement.
So, in conclusion, accountants must learn the system, train their employees, and then train their clients to follow it. All that for a labor intensive, low margin industry. There is simply more money to be made in other industries. The NTB is basically designed for the serious business person, quality operator who are in it for the return on investment, not for the thrill of the chrome or ease of the process.
I must admit, that problem is very difficult to overcome. To survive the first five or seven years of my business, I had to drive truck on the weekends, even after we had over 150 clients. Our firm was also forced to invest heavily in automation to survive. Today our system is one of the most technologically advanced in the accounting industry (I am told top 5%). It is not an easy industry to specialize in and that is coming from a firm with well over 500 Operators using NTB. We still have regular audits and keeping the 100% success rate is not cheap or easy. An accounting firm like mine must be committed to serving the industry; it must be their priority, their PASSION… not just their “filler” in between more lucrative clients.
The future of tax preparation will not be attaching sentiment to a person (such as an accountant, firm, family or friend) but to a digital SYSTEM (program/App) that knows what is going on with you and your business, and through minimal human intervention, adjusts your tax returns as your situation warrants. It is not a person you will be thankful to, but a software program or software company operating the appropriate system designed specifically for you or your industry.
As an Independent Operator you need to know your business, even the basics on taxes and get to know what your TRUE options are. Find the right SYSTEM, not the right firm or person and get the highest value for your hard-earned dollars.
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 email@example.com.
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.