13 May 1998 External T.I. 9805635 - EMPLOYEE’S EQUIPMENT VS SUPPLIES

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:

distinction between "supplies" and "equipment" with respect to deductions available to employees

Position:

hand tools, pneumatic tools with limited life, chisels, bits, safety equipment, creepers and storage units are capital equipment for which no deduction is available to employees; analytical supplies, to the extent that they are used up or consumed as they are used (such as the paper and ink used in an automotive diagnostic machine) would be deductible provided that the conditions for deductibility are otherwise met

Reasons:

deductions for employees are limited to those expressly provided by s 8 and does not include capital equipment (other than the cca on planes, cars, and musical instruments), even if such equipment has a limited life

XXXXXXXXXX 	980563
A. Humenuk
		BY FAX

May 13, 1998

Dear Sir:

Re: Definition of Equipment for the Purpose of the Employment Expense Deduction

This is in reply to your letter of March 5, 1998, in which you ask for clarification as to the meaning of “equipment” as it is used in the 1997 Employment Expense Guide and in paragraph 10(d) of Interpretation Bulletin IT-352R2, Employees’ Expenses, Including Work Space in Home Expenses, a copy of which is enclosed.

Specifically, you ask whether hand tools, pneumatic tools with a limited life span, analytical supplies, chisels, bits, safety equipment, creepers and storage units are considered to be equipment for the purpose of determining whether the cost of such items is prohibited as a deduction in computing an employee’s income from employment.

Subsection 8(2) of the Income Tax Act (the "Act") limits an employee’s deduction to amounts specifically permitted under section 8 of the Act. As there is no provision in section 8 which would permit a deduction of either the cost of, or capital cost allowance in respect of, equipment, an employee is not entitled to a deduction in respect of equipment.

Subparagraph 8(1)(i)(iii) of the Act provides a deduction in computing income from employment for the cost of supplies consumed directly in the performance of the duties of the office or employment when the employee is required to supply and pay for such supplies. For this purpose, the ordinary meaning of “supplies” and “equipment” apply. A supply that is consumed directly in the performance of the duties of office or employment is something which is “used up” as it is used and cannot normally be used more than once (or a few times as in the case of an ink cartridge). 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. The items referred to in your letter, with the possible exception of analytical supplies, would be considered to be equipment and thus, no amount can be deducted under subparagraph 8(1)(i)(iii) of the Act by an employee in respect of the cost of such items.

To the extent that the analytical supplies referred to in your letter are directly consumed in the process of analysis, such as the paper and ink used by a machine designed to analyse the operating efficiency of an automobile, the cost would be deductible under paragraph 8(1)(i) of the Act, provided that the employee was required to supply and pay for such items and the employer has certified that the conditions for deductibility have been met.

The issue of deductions for employees’ expenses has previously been discussed before the House of Commons Standing Committee on Finance. We enclose a copy of the 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 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.

We trust that these comments will be of assistance.

Yours truly,

P. Spice
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
Attachment