J.W. Pyefinch v. Her Majesty the Queen (Informal Procedure), [1995] 1 CTC 2361

Hamlyn J.T.C.C. (orally):-This is in the matter of J. W. Pyefinch, appellant, versus Her Majesty the Queen, respondent. It’s an appeal for the 1989, 1990, and 1991 taxation years. In computing income for those years the appellant deducted, respectively, the amounts of $2,097.20; $5,448.22; and $2,478.00 as other employment expenses. In reassessing the appellant, the Minister of National Revenue disallowed the deduction for the other employment expenses in the 1989, 1990, and 1991 taxation years.

In reassessing the appellant, the Minister made the following assumptions of fact that were admitted by the appellant under oath. At all material times the appellant was employed as an auto mechanic with Malvern Management Limited. The appellant’s employment income consisted of wages and salary from the employer. The expenses disallowed related to the purchase of expenses for tools, tool roll cabinet, and boxes.

The issue to be decided in this case is whether the appellant is entitled to deduct the purchase of the expenses for tools, tool roll box, and the boxes.

The appellant states to this Court, and I read from his appeal document which was substantially his submission to the Court:

The deduction requested for the taxation year 1989, was originally rejected by Revenue Canada, but after discussion with officials of Revenue Canada was allowed under the existing regulations.

The statement that only ’supplies’ consumed directly in the performance of the duties of employment may be claimed does not appear to reconcile itself with the fact that deductions may be claimed for Musical Instruments, Power Saws and Motor Vehicles.

The GST completion guide dated January 1992 at page 4, lists items which may be claimed as expenses for income tax purposes and are subject to GST Item #2 on the list is "TOOLS".

The Employment Expenses Guide states that: "You cannot deduct the cost of any types of tools that generally fall into the category of equipment.” Therefore, since this statement breaks down the term "tools" into those that are classed as equipment and those that are not, it allows the deduction of “tools” that are not classed as equipment.

So states the appellant. He further goes on to argue that:

Interpretation Bulletin No. IT-422 defines the word "tools".

Paragraph (2) states:

It is the Department’s view that a tool is an instrument of manual operation, that is, it is an instru-ment to be used and managed and controlled by machinery. In order for an asset to be a tool it must be designed to create a physical change in something or to be used as an instrument of measurement or manipulation. Examples are hammers, saws, squares, screwdrivers and hand-held power tools.

Paragraph (4) states:

An asset can be a tool in a general sense but its predominating character may be that of machinery and equipment. Thus, an item such as a typewriter which might be considered a tool, is properly regarded as machinery and is placed in class 8.

The appellant goes on to state in the argument before the Court:

Based on the foregoing, it becomes obvious that there is a difference in "tools" classed as "equipment" and tools not classed as equipment.

Using Revenue Canada’s own definition of "tools" and IT-352R of May 30, 1989, those deductions claimed in 1989, 1990 and 1991 fall into the category of "non-equipment"; and as such are legitimate deductions.

In terms of my analysis, I find that this appeal deals with an employee mechanic who is attempting to deduct the cost of his tools, at least according to his tax return, pursuant to subparagraph 8(l)(i)(iii) as supplies consumed directly in the performance of his duties of his office or employment and that he was required by his contract of employment to supply.

To show that an employee was required by the contract of employment to provide the supplies, the prescribed form must be filed with the return of income and that’s subsection 8(10). If it is an employment requirement, further the Minister alleges that the tools are not supplies directly consumed. The prescribed form for 1989 and 1990, the T2200, did not so indicate, but for the year 1991 the prescribed form did so indicate. The issue focuses on what is meant by the phrase “supplies directly consumed" and whether there is a distinction between tools that are equipment and tools that are not equipment.

Being an employee, the appellant must contend with the general prohibition in subsection 8(2) that limits deductions from employment income to those that are found in section 8.

The position that the Minister has argued this morning stems from the case of Luks v. M.N.R., [1958] C.T.C. 345, 58 D.T.C. 1194. This case dealt with an electrician who was required by his contract of employment to supply his own tools, namely a blow torch, screwdrivers, pliers, and a chalk line. Mr. Justice Thurlow dismissed the appeal in this respect holding that these were not supplies but equipment. At page 352 (D.T.C. 1198) he States:

"Supplies” is a word of narrower meaning than ’’things”, and in this context does not embrace all things that may be consumed in performing the duties of employment, either in the sense of being worn out or used up. The line which separates what is included in it from what is not included may be difficult to define precisely but, in general, I think its natural meaning in this context is limited to materials that are used up in the performance of the duties of the employment. It obviously includes such items as gasoline for a blow torch but, in my opinion, it does not include the blow torch itself. The latter, as well as tools in general, falls within the category of equipment.

Justice Thurlow’s comments, as indicated in argument by counsel for the respondent, are that the tools are supplies that are not consumed in performing duties of employment. That same decision, that the tools are equipment, was reached with respect to an air craft mechanic in Komarniski v. M.N.R., [1980] C.T.C. 2170, 80 D.T.C. 1134, by the Tax Review Board.

In conclusion, the appellant argues that there exists a class of tools that are not equipment. I agree that not all tools are equipment, but it doesn’t necessarily make them supplies nor does it make them deductible under paragraph 8 of the Act without specific reference. The agent for the appellant argued that musical instruments are allowed for, motor vehicles are allowed for, and so, therefore, he argued that equal treatment would state that the claims made by the appellant should be allowed.

I remind the agent for the appellant that those are specifically provided for in the Act, but the tools claimed by the appellant are not specifically provided for. The jurisprudence is clear; tools are not supplies as that term is used in paragraph 8(l)(i)(iii), but even if they were, they are not consumed, and the specific deduction for tool expense is not specifically provided for in the Act.

Therefore, as a consequence, I must conclude that the appeal must be dismissed. Thank you for your attendance this morning. Unfortunately, I cannot agree with your position. Thank you for coming to Court.

Appeal dismissed.