Free OnlineTax Preparation
English
- Francais

income tax canada network home page website income canada about us income tax services employed apprentice mechanics 2002 tax break
income tax products and services for canadian taxpayers income tax partners offering free information tax services in canada for canadians
cost of tools

TAXFlash News

IncomeTaxCanada.net is pleased to offer free practical expert advice on money and income tax topics for Canadian taxpayers and small businesses. The information should save you time and money when you next prepare and netfile your income tax return.

tax refund faster with ufile

TAXFlash News from IncomeTaxCanada.net

Jim Maroney Jim Maroney

:: Employed apprentice mechanics get 2002 tax break for cost of tools

:: Back in the 1990s tax changes were made as frequently as diaper changes on a newborn. This torrid pace has slowed down in recent years giving taxpayers and tax practitioners an opportunity to catch their collective breath. For better or worse, the pickings have been slim and the few changes that have been made have tended to apply to select groups rather than taxpayers in general. For 2002, one such select group is employed apprentice mechanics.


Employees generally receive no tax consideration for the cost of the tools they purchase for use in their employment activities. For vehicle mechanics this can present a considerable hardship since they are often required to supply their own tools in the performance of the duties. Ask any employee vehicle mechanic how much money they have tied up in tools and expect to see their eyes roll.

Believing this significant upfront cost to be an impediment to entering the trade, the government decided to introduce an income tax deduction for the “extraordinary portion of the cost of new tools” purchased by “eligible apprentice mechanics” in 2002 and later years.

Registration alone won’t do the trick

Notice that not just any apprentice mechanic will do – only “eligible” apprentice mechanics need apply. An eligible apprentice mechanic must be “registered in a program established in accordance with the laws of a province or territory that leads to a designation under those laws as a mechanic licensed to repair self-propelled motorized vehicles”. Just before you get to thinking “self-propelled” is a reference to Flintstone-type vehicles, the phrase actually refers to automobiles (cars, trucks and motorcycles), aircraft, boats, snowmobiles and the like. But registration alone won’t do the trick; you must also be employed as an apprentice mechanic.

Having met the “eligible apprentice mechanic” test, you then need to determine whether the money you spent was for “eligible tools”. An eligible tool is a tool that you acquired for use in connection with your employment as an eligible apprentice mechanic, that was not used for any purpose before you acquired it (i.e., new tools only; used tools won’t do) and that your employer certified as being necessary for you to provide for use in your employment as an eligible apprentice mechanic.

As is always the case where employment expenses are concerned, your employer must indicate such certification by completing form T2200 Declaration of Conditions of Employment. Questions 11 and 12 of Part B of this form ask the employer to verify that the tools being claimed were purchased and provided by the eligible apprentice mechanic as a condition of employment. Your employer is expected to review your list of tools that should be attached to your T2200, but interestingly, neither the form nor the list of tools need be sent in with your tax return. You do, however, need to keep the form and list on hand should you be called upon to support your claim.

So you’ve established that you’re an eligible apprentice mechanic, you’ve listed out your newly purchased eligible tools and had your employer verify your tool list, the issue then becomes how much can you deduct?

Unfortunately, the sky’s not the limit – no surprise there. The maximum deduction for eligible tools is determined by the formula A minus B where A is simply the cost of eligible tools purchased in 2002. Determining B isn’t quite so easy. B is the lesser of: (1) total cost of eligible tools purchased in 2002; and (2): the greater of $1,000; and 5 per cent of your employment income as an eligible apprentice mechanic.

Cutting to the quick, the effect of the formula is to provide a deduction for the cost of tools in excess of $1,000 or 5 per cent of apprenticeship income. In other words, to qualify for a tax deduction you must spend at least $1,000 and if your apprenticeship income is over $20,000 you must spend more than 5 per cent of your income.

Furthermore the basic deduction cannot exceed income from all sources in the taxation year. This means that you cannot create a loss with this deduction.

Strange as it may seem, apprentice mechanics are not obligated to claim this deduction in 2002 even if 2002 is the year in which the tools were purchased. Any amount not claimed as a deduction in the year can be carried forward for application against income earned in a future year. In fact, the deduction can be made against any type of income earned in a future year, even if the taxpayer is no longer employed as an eligible apprentice mechanic.

I suspect that this flexibility will create some interesting planning opportunities. For example, the situation will frequently arise where it makes sense to carry a claim forward because a taxpayer’s income was low in the year the tools were purchased but is expected to rise substantially in a following year after commencing full-time employment.

Claiming a deduction for capital expenditures is always fun but it’s important to understand that the tax benefit achieved can reverse itself later on when the tools are sold. Taxpayers claiming this deduction are required to reduce the cost of their tools by the amount of the deduction claimed. In the future, if these tools are sold for more than their depreciated value, the difference must be included in the taxpayer’s income. And just to complicate matters further, CCRA expects mechanics to apply any deductions claimed pro-rata across each of the eligible tools – can you say record-keeping nightmare?

Finally, in the tax world, nothing seems to happen without the dreaded GST coming into play and the new employed apprentice mechanics deduction is no exception. The good news here is that taxpayers will be eligible for a GST rebate on the portion of the purchase price of the new tools that is deducted (not purchased) in the year. This rebate is claimed on form GST-370. The bad news is that the GST rebate then becomes income in the year it is received. In most cases, taxpayers will claim a GST rebate in one year and include the amount as income in the following year.

So employed apprentice mechanics will be grateful for the new deduction and dismayed at the required record keeping. But, hey, it’s better than nothing.



Free Tax Advice Article Submitted to Income Tax Canada.net exclusively by Jim Maroney
CA Canadian Chartered Accountant with Brown, Andrews & Maroney in Maple Ridge, BC, Canada

Official details about this and other topics on income taxes can be found in English & Francais at www.ccra-adrc.gc.ca
Canada Revenue Agency (CRA) / l'Agence du revenu du Canada (ARC) offers bilingual information on its website for
NetFile, deductions (benefits - credits), interpretation bulletins, income tax forms (returns) and tax tables (brackets).

Income tax information offered by www.IncomeTaxCanada.net is done so without endorsement by Canada Revenue Agency (CRA) - l'Agence du Revenu du Canada (ARC) (formerly Canada Customs and Revenue Agency - l'Agence des Douanes et du Revenu du Canada CCRA-ADRC and formerly Revenue Canada – Revenu du Canada) or any Canadian government agency. The free advice is of a general nature for Canadian taxpayers seeking legal ways to reduce their personal and small business income taxes payable to the federal and provincial (or territorial) governments in Alberta, British Columbia, Manitoba, New Brunswick Newfoundland-Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Quebec, Saskatchewan or Yukon. Specific taxation situations vary from taxpayer to taxpayer, province to province, territory to territory. The free tax advice here is only a general guide. Canadians should always seek individual guidance on accounting rules and tax laws from knowledgeable accountants and lawyers. To prepare your income tax return online and NetFile your Canadian income taxes electronically in English or Francais, please visit www.ufile.ca or www.impotexpert.ca websites. Additional information on financial products and services for Canadians can be found at www.CanadianCreditCenter.com.