Calculate payroll deductions and contributions
Tool reimbursements, allowances and rental payments
Content has been updated for clarity, completeness and plain language. No changes were made to the current Canada Revenu Agency (CRA) administrative policy.
On this page
- Determine if the benefit is taxable
- Calculate the value of the benefit
- Withhold payroll deductions and remit GST/HST
- Report the benefit on a slip
- References
Determine if the benefit is taxable
The benefit is taxable if one of the following apply:
- You reimburse your employee to offset the cost of tools owned by the employee that they need for their job
- You provide an allowance to help your employee to pay for their tools
- You provide rental payments to your employee to pay for the cost when using their tools
Determine if you need to fill out Form T2200
You may need to fill out Form T2200, Declaration of Employment to certify that your employee must acquire these tools as a condition of, and for use in their employment.
Situations
Situation: Your employee is a tradesperson
If your employee is an employed tradesperson, including apprentice mechanics, and they meet all criteria, your employee may be eligible to deduct part of the cost of eligible tools they bought to earn employment income as a tradesperson in their T1 personal tax return.
In this situation, you have to fill out Form T2200, Declaration of Conditions of Employment.
The expenses in repairing these tools will not be deductible to your employee.
Learn more: Deductions for tools (tradespersons) and Employed apprentice mechanics.
Situation: Your employee is using their own power saws or tree trimmers at their own expense
If your employee is working in forestry operations and they meet all criteria, your employee may be eligible to deduct part of the cost of expenses for buying and using a power saw (including a chain saw or a tree trimmer) in their T1 personal tax return.
In this situation, you have to fill out Form T2200, Declaration of Conditions of Employment.
Learn more: Forestry operations.
Calculate the value of the benefit
The value of the benefit is equal to the reimbursement, the allowance or rental payments made for the tools owned by the employee.
Withhold payroll deductions and remit GST/HST
If a worker is an employee, the earnings from the employment contract are considered employment income.
Do not reduce your employee's employment income by the cost or value of tools saws, trimmers, parts, gasoline, or any other materials the employee supplies.
If the benefit is taxable, you must withhold the following deductions. The amounts must be included in the pay period they were received or enjoyed.
The withholding and remitting requirement depends on the type of remuneration: cash , non-cash , or near-cash .
Non-cash and near-cash: Option 1
Withhold:
- Income tax
- CPP
- EI (do not withhold)
Remit:
- GST/HST in certain situations
Cash: Option 2
Withhold:
- Income tax
- CPP
- EI
Do not remit:
- GST/HST
Learn how to calculate deductions and the GST/HST to remit on benefits: How to calculate – Calculate payroll deductions and contributions.
Report the benefit on a slip
If a worker is an employee, the earnings from the employment contract are considered employment income.
Do not reduce the employment income by the cost or value of tools saws, trimmers, parts, gasoline, or any other materials the employee supplies.
If the benefit is taxable, you must report the following amounts on the T4 slip.
Non-cash and near-cash: Option 1
Report on:
- Box 14 – Employment Income
- Box 26 – CPP/QPP pensionable earnings
- Code 40 – Other Information
Cash: Option 2
Report on:
- Box 14 – Employment Income
- Box 24 – EI insurable earnings
- Box 26 – CPP/QPP pensionable earnings
- Code 40 – Other Information
Learn how to report the benefit on a slip: Fill out the slips and summaries – File information returns (slips and summaries).
References
Related
- Employed tradespersons (and apprentice mechanics)
- Forestry operations
- Heavy machinery workers (Owners and operators) - CPP/EI Explained
Legislation
- ITA: 5(1)
- Income from office or employment
- ITA: 6(1)(a)
- Value of benefits
- ITA: 6(1)(b)
- Personal or living expenses (allowances)
- ITA: 8(1)(r)
- Apprentice mechanics’ tool costs
- ITA: 8(1)(s)
- Deduction – tradesperson’s tools
- ITA: 8(2)
- Deductions: General limitation
- ITA: 8(6)
- Apprentice mechanics
- ITA: 8(6.1)
- Eligible tool of tradesperson
- ITA: 8(7)
- Cost of tool
- ITA: 8(10)
- Certificate of employer
- CPP: 12(1)
- Amount of contributory salary and wages
- ETA: 173
- Taxable benefit is considered a supply for GST/HST purposes
- IECPR: 2(1)
- Amount of insurable earnings
- IECPR: 2(3)
- Earnings from insurable employment
- IECPR: 2(3)(a.1)
- Earnings from insurable employment - amount excluded as income under 6(1)(a) or (b), 6(6) or (16) of the ITA
Page details
- Date modified: