As a business owner it is important that you at least understand the basics of how taxes work as it is a reality of being in business. Now I don’t for any instance think or encourage you to take taxes on by yourself, that’s why accountants were brought into this world and the world of taxes both personal and business will make you pull your hair out. An accountant for your business is a must, but taxes need to be paid and can greatly affect your bottom line if you don’t at least understand the basics of how they work. I am going to generally outline the basic three that will affect the Owner Operator and I encourage the business owner to dig even deeper to learn how you can save money by working your tax situation out to your best advantage.
Realize we all need to pay personal taxes and those are created from your wage, earnings, deductions and so on. Depending on the setup of your business you may be taxed on the amount of money you made from a wage in your business or the total earnings of your business. This is one of the reasons I encourage Owner Operators to become incorporated and take a wage from their company. Personal tax rates are higher than corporate tax rates so you will be taxed on the wage at the personal level, and the company will pay corporate taxes on the rest which are much lower. if you are Sole Proprietor you will pay the personal tax level on the total earnings of your business. The rate goes up over $150,000 where most Owner Operators operate. Talk to an accountant about the tax rate for your business, you may save money by restructuring your business.
The other big tax for businesses is the HST / GST in Canada. This tax is based on products and services bought and sold in the country with the tax rate changing based on the Province. With fuel this will be a big one for the Owner Operator. It is mandatory for businesses making over $30,000 per year and the tax works on a plus minus type of scale. For instance if you make $100 worth of income plus HST the total (Ontario) would be $113.00. If you bought $80 of fuel and paid HST you would pay $90.40. If you subtract the HST amounts you would have $13-$10.40 =$2.60. When you file your HST return you would have to pay the $2.60 with your return. Understanding how this tax works and learning with the advice of your accountant when is the best time to purchase products and services may save you money on your taxes. This tax applies to everything in your business so it is important to understand its implications.
Fuel tax is one of those mysterious taxes that Owner Operators may or may not know about depending on the company they’re leased on with. You may have been working with the system and not even realized it. The fuel tax known as IFTA (International Fuel Tax Agreement) covers all of North America and is meant to even out road taxes paid by trucks to the Provinces and States they have travelled through. This changes constantly based on the areas travelled and is very hard to understand for most. Some companies do this for the Owner Operator, they may charge it back, or may count it against the fleet. Any Independent Operators will have to get this done on their own. It is a matter of recording the miles or kilometres traveled on each trip and charged against any fuel bought in that State or Province. For instance if you buy fuel in one State but don’t travel very many miles through that State the money you paid may be counted against the miles you traveled in Ontario or another state. You can save money here if you look into the areas you run the most and calculate the best place to buy your fuel, however that calculation may not offset the price at the pumps. If you feel you are paying more fuel tax then doing some tracking in the way you operate, it may be the best use of your time.
About the Author
Bruce Outridge is a business and leadership consultant with 30 years experience in the transportation industry. For more information visit his website at http://www.outridgeenterprises.ca