9 Strategies to Tax Shield your Trucking Company in Canada

Tyler Dyck

How to Tax Shield your Trucking Company in Canada

Running a trucking business in Canada comes with its unique set of challenges and financial complexities. One critical area every trucking company owner should focus on is tax planning and tax shielding. By strategically managing your income, expenses, and assets, you can significantly reduce the tax burden on your company while remaining compliant with the Canadian Revenue Agency (CRA). In this comprehensive guide, we’ll dive into various methods you can use to tax shield your trucking company in Canada.

What is Tax Shielding?

Tax shielding is the practice of legally reducing taxable income by claiming deductions, credits, and adjusting the timing of income or expenses. For trucking companies, tax shield strategies can involve asset depreciation, expense tracking, and structuring your business efficiently to maximize the available tax deductions.

Key Strategies for Tax Shielding in the Trucking Industry

  1. Incorporate Your Trucking Company One of the most significant tax advantages you can achieve is by incorporating your trucking business. Incorporation offers several tax shields, including income splitting, which allows you to distribute your earnings to family members to lower the total tax bill. Additionally, corporate tax rates are lower than personal tax rates, allowing more income to be reinvested into the business.

Incorporation also provides the opportunity to defer income. For instance, you can choose to leave some profits within the corporation and pay yourself dividends at a later time, potentially during a lower-income year.

Read more about the benefits of incorporation and numbered company setup on our service page.

  1. Maximize Capital Cost Allowance (CCA) Capital cost allowance (CCA) is an essential tax shield for trucking companies as it allows you to deduct the depreciation of assets such as trucks, trailers, and other equipment over time. The CRA allows you to claim depreciation using the declining balance method, reducing your taxable income year after year.

Here is a quick formula you can use to calculate CCA:

 

CCA = (Undepreciated Capital Cost x CCA Rate)

 

 

Trucks and trailers typically fall into the CCA Class 10, with a 30% depreciation rate. You can calculate your annual CCA using the formula above. This helps you reduce taxable income while reflecting the natural depreciation of your equipment.

 

Visit our page on transportation equipment depreciation to understand how depreciation fits into your tax planning.

3.      Leverage Expense Deductions Keeping track of your expenses is a key part of tax shielding. The more business-related expenses you can deduct, the lower your taxable income will be. Some common deductible expenses for trucking companies include:

    • Fuel costs
    • Maintenance and repairs
    • Insurance premiums
    • Lease payments for vehicles and equipment
    • Meals and lodging for long-haul drivers

It’s critical to maintain accurate records, ideally through dedicated software like QuickBooks. We offer QuickBooks data entry services to help you keep your expenses organized. For a detailed list of deductions, check out this Basic Tax Deduction Guidance Chart.

  1. Use Income Splitting Income splitting is a tax-saving strategy that allows you to distribute income to family members who are in a lower tax bracket. By paying them salaries or dividends, your family members can earn income at a lower tax rate while reducing the overall taxable income of the business.

Here's an example: If you pay yourself $150,000 as a salary, you’ll be in a higher tax bracket. However, if you split this income with a spouse or family member by paying them a salary or dividends, the income is taxed at a lower rate.

Learn how we can assist with income splitting on our income splitting page.

  1. Take Advantage of Meal and Mileage Allowances Truckers can claim meal allowances and mileage deductions to reduce taxable income. For instance, under the simplified method, you can deduct up to $23 for meals without receipts. For mileage, you can deduct travel expenses based on your vehicle’s use for business purposes.

To claim these deductions effectively, you must keep detailed logs. We offer a comprehensive mileage deduction service to ensure you never miss a tax-saving opportunity.

  1. Set Up CRA Accounts Properly It’s essential to ensure that your CRA accounts are set up correctly, whether it’s for GST, income tax, or payroll. Failure to do so could result in penalties and missed deductions. Setting up your CRA account properly also ensures that you can file tax instalments on time and stay compliant with CRA regulations.

Learn more about CRA account setup and how we can assist.

  1. Plan for Capital Gains If you sell a truck or other equipment, the sale can generate capital gains, which are taxable. However, planning your equipment sales carefully can reduce the tax impact. By adjusting your sales timing or utilizing the lifetime capital gains exemption (if applicable), you can shield your business from significant tax hits.

Read more about capital gains from truck sales and how to report them accurately on your taxes.

  1. Take Advantage of Payroll Services Managing payroll in-house can be complex, especially when accounting for taxes, CPP, and EI deductions. Utilizing a payroll service helps ensure compliance with tax laws and accurate reporting, reducing the risk of penalties.

We offer expert payroll services for trucking companies, allowing you to focus on operations while ensuring compliance.

  1. Track Insurance Costs Insurance costs are often one of the largest expenses for trucking companies. These costs are fully deductible, which means they can act as a tax shield. Moreover, choosing the right insurance coverage can protect your business from unexpected expenses that could eat into your profits.

See how insurance costs impact your business finances and how we can help you navigate this aspect of your business.

Table: Common Tax Deductions for Trucking Companies

Expense Category

Deduction Type

Documentation Required

Fuel Costs

Operating Expense

Receipts, Mileage Logs

Truck Repairs & Maintenance

Operating Expense

Invoices

Insurance Premiums

Business Expense

Policy Details, Receipts

Lease Payments

Operating/Capital Expense

Lease Agreement

Meal Allowances

Business Expense

Receipts, Logs

Equipment Depreciation

Capital Cost Allowance (CCA)

CCA Calculation (see above)

Payroll

Operating Expense

Employee Records, Payroll Reports

Use Tax Planning to Shield Your Trucking Company

Effective tax planning is one of the best ways to tax shield your trucking company. Regularly reviewing your finances and structuring your business in a tax-efficient manner can make a significant difference in your profitability.

At Truckeraccountant.ca, we specialize in tax planning for truckers across Alberta, from cities like Calgary and Edmonton to other Western Canadian cities. Whether you need help with income splitting, managing capital gains, or maximizing your deductions, we’ve got you covered.

Contact Us Today
Tax planning and tax shielding don’t need to be complicated. Let us handle your accounting needs, so you can focus on driving and growing your business. Contact us today to learn how we can help shield your trucking company from unnecessary taxes!

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