Driver Inc. and Personal Services Businesses in the Trucking Industry: What You Need to Know
The Driver Inc. scheme involves truck drivers incorporating themselves to avoid payroll obligations and reduce taxes. The CRA considers many of these corporations to be Personal Services Businesses (PSBs), which come with serious tax consequences. This post explains what a PSB is, how it applies to the trucking industry, and what both incorporated drivers and the companies that hire them are required to do.
7/20/20264 min read
If you are a truck driver operating through your own corporation, or a trucking company that hires incorporated drivers, the CRA has a message: the rules are being enforced.
Budget 2025 proposed dedicated funding for a focused CRA program to address non-compliance related to personal services businesses and the reporting of fees for services in the trucking industry. Combined with the lifting of the moratorium on T4A penalties for the 2025 tax year, it is clear the CRA is taking this seriously.
Here is what you need to know.
What is Driver Inc.?
Driver Inc. is a term used to describe a scheme where a truck driver sets up a corporation to provide their driving services to a trucking company. Instead of being hired as an employee, the driver bills the company through their corporation. On the surface this might seem like a straightforward business arrangement. But when the CRA looks at the actual working relationship, the driver often looks a lot more like an employee than an independent business owner.
When that is the case, the driver's corporation may be classified as a Personal Services Business.
What is a Personal Services Business?
A Personal Services Business (PSB) is a corporation set up by an individual to provide services to another business, where the individual performing the services would reasonably be considered an employee of that business if the corporation did not exist.
The CRA looks at the actual working relationship to determine whether a PSB exists. Key factors include whether the driver works exclusively or primarily for one company, whether the company controls how and when the work is done, whether the driver uses the company's equipment, and whether the driver takes on any real financial risk as a business owner.
If those conditions point to an employment relationship, the corporation is likely a PSB.
What are the tax consequences of being a PSB?
This is where Driver Inc. gets costly. PSBs are subject to significantly different, and less favorable, tax rules than regular corporations.
A PSB cannot claim the small business deduction. This means it does not benefit from the lower small business corporate tax rate. A PSB cannot claim the general tax rate reduction either. A PSB is subject to the full federal and provincial corporate tax rates plus an additional 5% tax on PSB income. A PSB cannot deduct most ordinary business expenses that a regular corporation could deduct.
The only expenses a PSB can generally deduct are the salary and wages paid to the incorporated employee, the cost of benefits provided to that employee, and expenses the employee could have deducted if they had been employed directly rather than through a corporation.
The result is that the corporation ends up paying significantly more tax than a regular small business corporation would, which defeats much of the financial purpose of the Driver Inc. arrangement.
Obligations of a PSB in the trucking industry
If your corporation is carrying on a PSB in the trucking industry, here is what you are required to do.
File a T2 corporation income tax return every year, even if there is no tax payable. Issue T4 slips to the corporation's employees, including to yourself as the owner if you are an employee of your own corporation. When employment income or dividends are paid to the owner of the corporation, that income must be reported on the owner's personal T1 return, whether it is reported on a T4 or T5 slip. Issue T4A slips for any fees for services your corporation pays to other CCPCs in the trucking industry exceeding $500 in a calendar year, reported in Box 048 of the T4A slip.
Obligations of trucking companies that hire incorporated drivers
If your trucking business pays fees for services to a corporation in the trucking industry, including PSBs, and those payments exceed $500 in a calendar year, you are required to report that amount in Box 048 of the T4A slip and file it with the CRA by the last day of February of the following year. With the moratorium on penalties now lifted for the 2025 tax year, failure to do so can result in CRA penalties.
Why does this matter beyond the tax bill?
Workers in a Driver Inc. arrangement often miss out on protections and entitlements they would otherwise have as employees, including Employment Insurance, Canada Pension Plan contributions made by an employer, and protections under employment standards legislation.
From the CRA's perspective, Driver Inc. also represents a significant source of tax non-compliance. When drivers are misclassified as independent contractors rather than employees, neither the driver nor the company remits the CPP and EI contributions that would otherwise be required. Budget 2025 has made it clear the government intends to address this.
What should you do?
If you are an incorporated truck driver, review your working arrangement carefully. If the relationship looks like employment, one primary client, company-controlled schedule, company-owned equipment, your corporation may be a PSB and the tax consequences are serious.
If you are a trucking company hiring incorporated drivers, make sure you understand the employee versus independent contractor distinction, are issuing T4A slips where required, and are aware of your potential CPP and EI obligations if drivers are reclassified.
In either case, getting proper advice before the CRA comes knocking is far less costly than dealing with reassessments, penalties, and interest after the fact.
Fab Tax CPA can help you understand your obligations and make sure your filings are correct.
CRA source: canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/requirements-trucking-industry.html
This content is for general information only and does not constitute professional tax advice. Please consult a CPA for advice specific to your situation.