Four bills, four statutes, one set of facts — and one of them reaches the directors personally.
Key takeaways
If the Canada Revenue Agency concludes that drivers paid as incorporated contractors were in substance employees, the carrier — not the driver — carries the amounts that should have been withheld, plus penalties and interest, plus the same exposure under the Canada Pension Plan and Employment Insurance. Directors can be made personally liable for it. The driver’s own corporation is separately exposed under the personal services business rules, and in Ontario the WSIB can charge premiums back to the start of the working relationship.
Four bills, four different statutes, one set of facts. Below is what each one actually says.
Subsection 153(1) of the Income Tax Act requires a person paying salary, wages or other remuneration to deduct and remit the prescribed amount. Where a driver is recharacterised as an employee, that obligation is treated as having applied all along.
The penalty is in subsection 227(8): a person who in a calendar year fails to deduct or withhold an amount required by subsection 153(1) is liable to a penalty of 10 per cent of the amount that should have been deducted or withheld — rising to 20 per cent where a penalty under that subsection was already payable for the year and the failure was made knowingly or in circumstances amounting to gross negligence. Interest runs separately under subsection 227(8.3).
These are the two most commonly underestimated exposures, because they attach the whole amount rather than a percentage penalty.
Subsection 21(1) of the Canada Pension Plan requires an employer paying remuneration in pensionable employment to deduct the employee’s contributions and remit them together with the employer’s own required contributions. Subsection 21(2) then makes an employer who fails to deduct and remit “liable to pay to Her Majesty the whole amount that should have been deducted and remitted” from the time it should have been deducted.
Section 82 of the Employment Insurance Act works the same way: subsection 82(1) requires the employer to deduct the employee’s premium and remit it with the employer’s premium, and subsection 82(4) makes an employer who fails to do so liable for the whole amount that should have been deducted and remitted.
Both statutes contain a narrow relief: an employer is not liable if it was informed in writing, in a ruling, that no deduction was required, the ruling was not based on materially incorrect information the employer supplied, and it is later decided that the deduction should have been made. That is the argument for getting a ruling before the arrangement runs, not after it is questioned. The worker’s own side of a reassessment is described in this piece on recovering CPP and EI after a misclassification.
Subsection 227.1(1) of the Income Tax Act makes the directors of a corporation that failed to deduct, withhold, remit or pay jointly and severally, or solidarily, liable together with the corporation for that amount and any interest or penalties relating to it. The limitations in subsection 227.1(2) — broadly, that a certificate has been registered and execution returned unsatisfied, or the corporation is in liquidation, dissolution or bankruptcy — are procedural steps, not a shield.
For an owner-operated carrier this is usually the sentence that changes the conversation. Source deduction exposure is one of the few corporate liabilities that reliably reaches the people who signed the cheques. The broader picture of what follows a misclassification finding is set out in this guide to CRA penalties on worker misclassification and this one on the wider consequences.
Carriers often assume the risk is theirs alone. It is not, and the driver’s side is worth understanding because it is what makes the arrangement unravel from below.
If the driver’s company is a personal services business under subsection 125(7) of the Income Tax Act, it is excluded from “active business” and so loses the small business deduction; paragraph 18(1)(p) of the Act denies almost all deductions apart from remuneration and benefits paid to the incorporated employee and a short list of selling and legal costs; and section 123.5 adds 5 per cent of taxable income from a personal services business to the tax otherwise payable. A driver who was told incorporating would save tax generally discovers the opposite, and then has an incentive to ask for a ruling.
If the WSIB rules that an owner-operator is a worker, it is explicit that the status is effective from the start date of the working relationship and the business may need to make retroactive premium payments. Premiums for a trucking business are not trivial: the 2026 class rate for class F1, Rail, Water, Truck Transportation and Postal Service, is $3.41 per $100 of insurable payroll, against a Schedule 1 average of $1.23. Applied retroactively across a fleet of drivers, that is a material number before anyone has mentioned a claim. The registration obligations themselves are summarised in this WSIB registration guide.
Worked example: how the four bills stack
This is an illustration of structure, not a prediction of amounts. Assume a carrier paid ten drivers as incorporated contractors for two years, and a review concludes they were employees throughout.
Income tax. The amounts that should have been withheld under subsection 153(1) are assessed, plus a penalty of 10 per cent of those amounts under subsection 227(8) — 20 per cent if a penalty was already payable that year and the failure was knowing or grossly negligent — plus interest.
CPP and EI. The whole amount that should have been deducted and remitted, employee and employer portions, under subsection 21(2) of the Canada Pension Plan and subsection 82(4) of the Employment Insurance Act.
Directors. Subsection 227.1(1) reaches the directors personally for the source deduction amounts, interest and penalties.
WSIB. Premiums back to the start of each working relationship, at the class rate for the carrier’s classification.
Note what is not on the list: nothing here depends on a driver complaining, and nothing is reduced by the drivers having agreed to the arrangement.
Three routes account for most files. A driver applies for Employment Insurance or a Canada Pension Plan benefit and the claim exposes years of non-participation. A driver, or the driver’s accountant, requests a ruling on employment status. Or the file arrives through enforcement: the Canadian Trucking Alliance reports $18.8 million in tax reassessments generated to date by the joint Canada Revenue Agency and Labour Program initiative, supported by an expanded information-sharing arrangement covering personal services businesses in the trucking sector, and describes that figure as a fraction of the problem.
A workplace injury is the fourth route, and the fastest. An injured owner-operator who turns out to be a worker produces a WSIB status ruling, a claim and a premium reassessment in the same month — the employer’s duties once a claim opens are set out here.
Advice on a specific arrangement has to come from a lawyer or an accountant who has seen your contracts and your operations; nothing here is that. But three things are generally true. First, the analysis is about how the work is organised, not how the agreement is worded, so rewriting the agreement alone changes nothing. Second, a ruling requested before a dispute is worth more than the same ruling requested after, because of the relief provisions in the Canada Pension Plan and the Employment Insurance Act described above. Third, the exposure compounds every pay period it continues.
What software can do here is narrow and worth doing: reconstruct who was paid what, when, and under which arrangement, so that whoever advises you is working from a complete record instead of a shoebox. Extraction and reconciliation are mechanical. The characterisation decision is not, and belongs to your professional advisers.
Consent does not change the statutory tests. Section 167.1 of the Canada Labour Code prohibits an employer from treating an employee as if they were not an employee, without reference to what the employee agreed to.
That depends on the statute, the facts and whether misrepresentation is alleged, which is precisely the question to put to a tax adviser rather than to a website. Assume it is longer than one year.
Look at what the drivers actually do rather than how they are papered: whose tractor, whose plate, whose dispatch, whose customers, whether anyone can refuse a load or send a substitute. Then read what the model looks like and put the findings to counsel before closing.
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