2019-0805901M4 Contract Drivers - Personal Services Business

Principal Issues: Factors to consider in determining whether incorporated contract truck drivers are personal services businesses.

Position: Depends on the facts of each circumstance.

Reasons: The legislation.

Author: Ross, Matthew
Section: 125(7) ("personal services business")

May 10, 2019

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Diane Lebouthillier, Minister of National Revenue, has asked me to reply to correspondence she received from the office of the Right Honourable Justin Trudeau, Prime Minister of Canada, about the classification of driving services corporations as personal services businesses. Thank you for your understanding regarding the delay of this response.

You express concern that the Canada Revenue Agency (CRA) is classifying some incorporated contract truck drivers as operating a personal services business.

A contract truck driver may choose to incorporate and provide their services to a payer (a person or company who pays the truck driver for their services) through a corporation. Generally speaking, a personal services business exists where the individual would be considered to be an employee of the payer if it were not for the existence of the corporation. This structure is sometimes referred to as an incorporated employee.

Personal services businesses are subject to specific rules in the Income Tax Act. They are subject to the full federal and provincial tax rates on all taxable income. There is also an additional 5% tax for personal services businesses.

Personal services businesses are also limited in the expenses they may deduct compared to other corporations. Generally, expenses that may be deducted by a personal services business are:

*     any salary, wages, benefit, or allowance the corporation provides to its incorporated employee(s);

*     amounts paid by the corporation in connection with the negotiating of contracts, as long as the amount would have been deductible from employment income if it had been paid by the incorporated employee under a contract of employment that required the employee to pay the amount; and

*     legal expenses the corporation incurs for collecting amounts owing to it.

Whether an individual would be considered an employee of the payer or self-employed is a question of fact that the CRA can determine only by examining all of the circumstances of the working relationship between the parties. There are a number of factors that the CRA considers when determining whether a contract truck driver would be considered to be in an employment-type relationship. You can find a discussion of these factors and other information about this topic at canada.ca/en/revenue-agency/services/tax/canada-pension-plan-cpp-employment-insurance-ei-rulings/cpp-ei-explained/truck-drivers.

Contract truck drivers and their payers are free to structure their affairs as they wish. However, the parties must make sure that the facts of the working relationship support the arrangement they have chosen.

I appreciate the opportunity to respond to your concerns and trust the information I have provided is helpful.

Sincerely,

Geoff Trueman
Assistant Commissioner
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency

Matthew Ross
2019-080590

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