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Tax Man Offers Tradesperson Tool Deduction

Economic downturns not only hurt workers who have been laid off because due to declining markets they also have an effect on self-employed contractors and those who are under their employ. Because even during dips in the economy buildings, vehicles and factories need repairs but it is difficult to retain a workforce when projects are few and far between. As well, tradespersons find it hard to replace badly-needed tools. This is why the new program initiated by the Canadian Revenue Agency to help defray the costs of tools for trades people and apprentices is very timely.

Tools have never been cheap and with declining work prospects the skilled workforce graduating from trades schools still need them to compete for jobs. Otherwise it’s almost a Catch 22 situation: They have the opportunity for work but they have no tools to work if they did get the position. Now they will be able to deduct the cost of the tools from their income tax for that year which should help defray these costs. And this program is retroactive to May 1, 2006.

Tradespersons’ Deductions

If a person is in person the government allows them to deduct certain expenses that enabled them to earn income from that business. Tradespersons are allowed to deduct the cost of eligible tools bought to earn employment income in their area of expertise and this includes apprentices. In addition this cost will include any GST and provincial sales tax that has been paid (HST in some Atlantic provinces). The sales tax may be given back as a rebate to the person who filed the return.

Tradespersons’ Annual Tool Deduction

The new tradesperson's tools deduction provides employed workers with an annual deduction of up to $500 toward the cost of new tools necessary to affect their trade. There are conditions to be met and these are:

  1. Total Cost: The sum cost of the tools must exceed $1,000
  2. Date of Purchase: The tools had to have been bought after May 1, 2006
  3. Qualified Purchase: The tools had to have been bought by an employed tradesperson.

Rules for Claiming Tools as an Income Tax Deduction

Of course the tools have to be within the realm of their occupation because the government will not allow a carpenter, for example, to claim mechanics’ tools unless he or she can prove that these tools are necessary for the business. So an eligible tool is deemed as one that:

  1. Specific Use: If the tradesperson bought specific tools for the job they were not used for any other purpose before it was purchased. In other words the tools must be bought new for a specific purpose within the boundaries of the job description.
  2. Work Qualification: The tradesperson’s employer may deem certain tools as being necessary in order to work for the company as outlined in the job description. This means that a carpenter needs to bring a standard tool belt-full of specific tools as would an electrician.
  3. Single Use: The tools in question must not be an electronic communication device (like a cell phone) or electronic data processing equipment unless the device or equipment can be only be used for measuring, locating, or calculating.
  4. Declaration: If the tradesperson is in the employ of a company his or her employer must fill out Form 2200, a Declaration of Conditions of Employment. The employer will pay close attention to question 11 of Part B of the form. This certifies that the tools being claimed were bought and provided by the applicant as a condition of employment for the trade. Attached to this form should be a list of the tools being claimed and the related receipts and they are to be kept with the applicant’s income tax records for display during an audit.

The tax incentives offered up by the Canadian Revenue Agency is a not a large amount of money but it does take the edge off the purchase of new tools especially for those on the low end of the wage barometer. A $500 deduction may not seem like much but it is in after-tax dollars. This means that there might be much more coming back as an income tax refund, depending on the claimant’s tax situation. This is especially true for claimants who are apprentices or low wage earners.

Like the renovation tax credits, the government isn’t really giving out a lot. However, it is small changes like this that begin to oil the wheels of sustainable employment.