14 June 2000 External T.I. 2000-0018085 - AUTOMOTIVE TOOLS - EMPLOYEE

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: 1. No provision in ITA which permits a deduction to employees for the cost of acquiring mechanics' tools.

2.Whether small tools costing less than $200 would be deductible to an automotive mechanic employee.

Position: 1. 8(1)(i)(iii) of ITA refers to the cost of supplies consumed but this does not contemplate the deduction of mechanics' tools since they cannot be consumed.

The Standing Committee on Finance examined the issue of employment expenses, including the non-deductibility of mechanics' tools. The Committee received submissions from the Canadian Automobile Repair and Service Institute regarding the issue and presented its report to the House of Commons on June 10, 1992. The Committee concluded that the issue of employment expenses was complex and therefore, no recommendations were made regarding legislative changes.

2. No.

Reasons: 1. Standing Committee 's Report.

2. Small tools are capital assets under Class 12(h) of the Income Tax Regulations and not deductible under the ITA CCA allowed. to a self-employed businessperson not an employee.

		2000-001808
XXXXXXXXXX 	M. Shea-DesRosiers
(613) 957-8953
June 14, 2000

Dear XXXXXXXXXX:

Re: Deduction of Employment Expenses

This is in reply to your letter of April 1, 2000, wherein you request our opinion concerning the issue of automotive mechanics who are required under the terms of their employment to purchase their own tools.

Your client is an automotive mechanic and is required to supply his own tools, tool box and equipment. His employer has provided him with the form T2200 confirming this request. You have advised your client that the Income Tax Act does not permit a deduction for a capital asset in this instance nor is there any provision for deduction of capital cost allowance. Your client, however, believes that his purchases of small tools costing less than $200 would qualify as supplies consumed in his employment and should be allowable.

Our comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments which may be of assistance to you.

The Income Tax Act provides a deduction in computing income from employment for the cost of supplies consumed directly in the performance of the duties of employment when the employee is required to provide and pay for such supplies. For this purpose, the ordinary meaning of supplies and equipment apply. An item that is consumed is something which is used up as it is used and cannot normally be used more than once. While equipment wears out over time, sometimes within a taxation year, it is expected to be used more than once with no appreciable loss of substance. As there is no provision which could permit a deduction of either the cost of automotive tools or an allowance for automotive tools, an employee is not entitled to a deduction in respect of equipment.

The issue of deductions for employees' expenses has previously been discussed before the House of Commons Standing Committee on Finance. The Committee received submissions from the Canadian Automobile Repair Service Institute regarding this issue. Enclosed is a copy of the Committee's report tabled in the House of Commons on June 10, 1992, which highlights some of the difficulties in finding an equitable solution to this issue. An amendment to the Income Tax Act would be required in order to permit employees a deduction for capital cost allowance in respect of equipment that must be supplied by the employees.

Canada Customs and Revenue Agency ("CCRA") is responsible for the administration of the Income Tax Act. Accordingly, any changes to the tax policy or amendment to the legislation would have to be considered by the Department of Finance. Should your client believe that a change should be made to the Income Tax Act to provide for such a deduction, either you or your client should write to the Department of Finance.

As for your client's comments concerning the purchases of small tools costing less than $200, we refer you to Interpretation Bulletin IT-422 (the "Bulletin"), a copy of which is enclosed, which outlines the CCRA' s position regarding the definition of the word "tools" for purposes of paragraph (h) of class 12 of the Income Tax Regulations. As mentioned in paragraph 2 of the Bulletin, "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". Small tools costing less than $200 are capital assets, not supplies, and are therefore not deductible from employment income under the Income Tax Act. Capital cost allowance on such tools would be allowed to a self-employed businessperson but not to an employee.

We trust our comments will be of assistance to you.

Yours truly,

Roberta Albert. CA

for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy And Legislation Branch

Encl.

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