20 January 1993 Income Tax Severed Letter 9237105 - Reimbursement for Replacement of Tools

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.

923710
XXXXXXXXXX
A.W. Larochelle
(613) 952-1361

January 20, 1993

Dear XXXXXXXXXX

Re: Reimbursement for Replacement of Tools

This is in reply to your facsimile of December 9, 1992 asking for our views on a situation where an employer makes payments to employees in respect of the replacement of tools used by the employees in carrying out their employment duties.

In your letter, you have set out the following situation:

• 1. An employee is required to purchase his own tool kit for use in his employment. He is not reimbursed for these tool purchases.
• 2. As the tools become worn, damaged or outdated through use in employment, the employee may claim a reimbursement from his employer equal to a nominal percentage (i.e. less than 10%) of the cost of replacing such tools. All such reimbursements are supported by receipts evidencing the purchase of replacement tools.
• It is your position that the reimbursement outlined in 2. above does not constitute a taxable benefit as envisioned by 6(1)(a) and IT-470R (paragraph 23) for the following reasons:
• 1. The employee has not received any economic benefit as the initial outlay for the tools was in no way reimbursed by the employer.
• 2. The subsequent reimbursement for replacement of tools worn out through use in employment simply maintains the employee's original economic position.
• Pursuant to our telephone conversation of January 18, 1993 with the writer, it is our understanding that your situation relates to a specific proposed transaction. This Directorate will only consider the tax consequences of such a transaction where an advance income tax ruling has been requested. The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R2. We are, however, providing the following general comments which we hope are of assistance to you.
• In a situation where an employer makes payments to an employee with respect to the replacement of the employee's tools used in the employer's business, it is our view that the payments represent a benefit received by virtue of the employer-employee relationship. Accordingly, the amounts are taxable in the hands of employees as employment income. It is also our view that by virtue of subsection 8(2) of the Income Tax Act, neither the cost of the tools nor expenses in repairing them may be deducted by an employee.
• These comments are consistent with paragraph 23 of Interpretation Bulletin IT-470R entitled "Employees' Fringe Benefits" which indicates that payments made in similar circumstances are taxable under paragraph 6(1)(a) of the Income Tax Act.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch