Tool reimbursement or allowance

If you reimburse or provide an allowance to your employees to offset the cost of tools that they needs for their job or you pay for their tools, the amount of the payment is a taxable benefit and should be included in the employee's income.

When employed tradespersons (including apprentice mechanics) file their income tax and benefit return, they may be able to deduct part of the cost of eligible tools they bought to earn employment income as a tradesperson.

Employers have to fill out and sign Form T2200, Declaration of Conditions of Employment, to certify that the employee must acquire these tools as a condition of, and for use in, his or her employment.

For more information, see Guide T4044, Employment Expenses.

Include any GST/HST that applies in the value of the reimbursement, but do not include GST/HST in the value of the allowance.

Payroll deductions

Tool reimbursements and allowances are taxable, pensionable and insurable. Deduct income tax, CPP contributions, and EI premiums.

Reporting the benefit

Report the taxable reimbursements or allowance in box 14 "Employment income" and in the "Other information" area under code 40 at the bottom of the T4 slip. For more information, see T4 – Information for employers.

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