Principal Issues: [TaxInterpretations translation] 1. Can the cost of tools be deducted in computing income from a business or property as a current expense? In this case, should the amount of the expense that is deductible reflect the fact that they are used, at least in part, for personal purposes?
2. If the tools are capital assets, you wish to know if you could claim capital cost allowance under Class 12 of Schedule II of the Income Tax Regulations ("ITR"). Should the amount of the CCA take into account your personal use of the tools?
Position: The tools are Class 12 depreciable property. The amount of CCA that can be claimed must reflect the personal use of the tools.
Reasons: Income Tax Act.
XXXXXXXXXX 2011-039244
May 18, 2011
Dear Sir,
Subject: Tools to maintain a rental building
This is in response to your email of January 11, 2011 in which you requested our opinion regarding the tax treatment of tools that you purchased for less than $200.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
In particular, you indicated that you own a rental property with four units. You occupy the ground floor. In 2010, you purchased small tools to maintain the building, including the unit you occupy, all at a unit cost of less than $200.
You asked the following two questions:
1. Can the cost of the tools be deducted in computing your income from a business or property as a current expense? In this case, should the amount of the expense that is deductible reflect the fact that they are used, at least in part, for personal purposes?
2. If the tools are capital assets, you wish to know if you could claim capital cost allowance under Class 12 of Schedule II of the Income Tax Regulations ("ITR"). Should the amount of the CCA take into account your personal use of the tools?
Our Comments
It appears to us that the situation described in your letter and hereinafter summarized could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the practice of this Directorate to provide comments on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involved specific taxpayers and one or more transactions, you should submit all relevant facts and documents to the appropriate Tax Services Office for their opinion. However, we are able to offer the following general comments that may be helpful to you.
Interpretation Bulletin IT-422, Definition of Tools, provides an explanation of the properties that may be included in paragraph 12(h) of Schedule II of the ITR.
The Bulletin states the following:
[...] a tool is an instrument of manual operation, that is, it is an instrument to be used and managed by hand instead of being moved and controlled by machinery. In order for an asset to be a tool it must be designed to create a physical change in something or to be used as an instrument of measurement or manipulation. Examples are hammers, saws, squares, screwdrivers and hand-held power tools.
Unless tools, at a unit cost of less than $200, are inventory assets - which does not appear to be the case here - the CRA is of the view that such assets are depreciable assets described in Class 12 of Schedule II of the ITR.
When a depreciable asset is used both for personal purposes and for the purpose of earning income from a business or property, the CRA is of the view that the maximum amount of CCA that can be claimed pursuant to paragraph 20(1)(a) must be reduced to reflect the personal use that is made of it.
We hope that these comments are of assistance.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnership Section
Income Tax Rulings Directorate