When Does the Cost of Your Tools Become Tax Deductible?

If you purchased tools that you use as a tradesperson or as someone who is self-employed, you may qualify for an income tax deduction. Knowing this, you should be able to save on your taxes, but only if you properly understand how to claim the deduction.

Tools Deduction for Employed Tradespeople

As an employed tradesperson, the cost of the eligible tools that you buy is deductible.

• You may be able to deduct up to $1,000 of the cost of eligible tools you bought.
• You may also be able to get a rebate on the Goods and Services Tax/Harmonized Sales Tax you paid for the tools you purchased.

Eligible Tools

An eligible tool is classified as a tool (or related equipment, such as a toolbox) that you bought to use in your job as a tradesperson that was not used before you bought it. Furthermore, your employer must certify it as being a necessary tool for your job as a tradesperson.

According to the Canada Revenue Agency, electronic communication devices (such as a cellphone) and electronic data processing equipment do not qualify as eligible tools unless it can be used sufficiently for measuring, locating or calculating as part of your job.

Calculating the Deduction

1. Add your income from employment as a tradesperson for the year to the amount you received under the Apprenticeship Incentive Grant and the Apprenticeship Completion Grant programs (subtract any program overpayments that you had to repay).
2. Compare this figure to the amount you spent on eligible tools in the year. Choose the lesser amount.
3. Then subtract $1,433 from that amount.
4. Your deduction is either the final result of your calculations or $1,000 (whichever is lower).
5. Enter your claim on the tradesperson’s tools expenses line (1770) of Form T777 (Statement of Employment Expenses).
   • You also need to have a Form T2200 (Declaration of Conditions of Employment), signed by your employer.

For example, let’s say you earned $30,000 from employment income as a plumber and you spent $1500 on tools for the job during the year. Your deduction would be calculated as follows: $1500 (the lesser of your actual expense and your earned income) minus $1,433 = $67.

Additional Deduction for an Eligible Apprentice Mechanic

If you are an eligible apprentice mechanic, you may be able to deduct part of the cost of the eligible tools that you purchased to earn income as a mechanic in addition to any amounts that you have already claimed under the tradesperson’s deduction for tools.

To be eligible for the deduction, you must meet both of these requirements:

• You must be registered in a program established under the laws of Canada or of a province or territory that leads to a designation as a mechanic who is licensed to repair self-propelled motorized vehicles.
• You also have to be employed as an apprentice mechanic.

Deduction for a Self-Employed Person

If you are self-employed and you have purchased tools that you use in your business, the full cost of those tools is also considered to be a deductible business expense. In this situation, there is no $1,000 cap and you do not have to fill out Form T777, as the cost of the tools is not an employment expense. Instead, the cost of the tools must be listed as an expense on the income statement for the business.

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Resources:

• CRA: Deduction for tools (tradespersons)