Principal Issues: [TaxInterpretations translation] Can a welder who carries on a business deduct the cost of steel-toe work boots and fire-resistant clothing?
Position: A question of fact, but generally not. It is a personal expense under paragraph 18(1)(h) of the Income Tax Act.
Reasons: Income Tax Act, longstanding position of the CRA
Septemeber 21, 2010
Montérégie-Rive-Sud Tax Services Office Headquarters Business and Partnerships Division Attention: Karine St-Pierre A. Dagenais Advocate, M. Fisc. B.A.A.
2010-037701
Deductibility of clothing expenses
This responds to your fax of August 5, 2010, in which you requested our opinion regarding the deductibility of clothing expenses.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
Specifically, you described a situation where a welder, who is self-employed, incurred expenses in the course of his business for the purchase of steel-toed work boots and fire-resistant clothing.
You wish to know if the taxpayer can deduct the costs of these work items in computing the income from his business.
Our Comments
Under the Act, a taxpayer who carries on a business or earns income from property may deduct expenses that were incurred for the purpose of gaining or producing income from the business or property. Subsection 9(1) provides that a taxpayer’s income for a taxation year from a business or property is the taxpayer’s profit from that business or property for the year.
However, the Act specifically prohibits the deduction of expenses that are personal, of a capital nature or unreasonable in the circumstances. Exceptions include those provided for in paragraphs 18(1)(a), (b) and (h).
In computing a taxpayer's income from a business or property, subsection 18(1) provides that the following are not deductible:
(a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property;
(b) an outlay, loss or replacement of capital, a payment on account of capital or an allowance in respect of depreciation, obsolescence or depletion except as expressly permitted by this Part;
[...]
(h) personal or living expenses of the taxpayer, other than travel expenses incurred by the taxpayer while away from home in the course of carrying on the taxpayer’s business;
Paragraph 20(1)(a) also provides that a taxpayer may deduct, in computing income from business or property, such part of the capital cost to the taxpayer of property, or such amount in respect of the capital cost to the taxpayer of property, if any, as is allowed by regulation. In order for a taxpayer to claim capital cost allowance ("CCA") in respect of property, such property must have been acquired for the purpose of earning income from a business.
In this context, paragraph (i) of Class 12 of Schedule II to the Income Tax Regulations (the "Regulations"), which allows a depreciation rate of 100%, provides that a uniform may be included in that class. In addition, paragraph (i) of Class 8 in Schedule II to the Regulations includes in this class a tangible capital property that is not included in any other class. In connection with this paragraph, Interpretation Bulletin IT-525R provides examples of expenses that are deductible by a performing artist carrying on a business where such expenses are incurred to earn income from that activity. Subparagraph (l) of paragraph 10 of the Bulletin indicates that an artist may claim capital cost allowance (Class 8 – 20% declining balance) on instruments, sheet music, scores, scripts, transcriptions, arrangements and equipment. Subparagraphs (l.1) and (l.2) specify that costumes are eligible for capital cost allowance only if the artist acquired them solely for performances.
We are of the view that a self-employed person acquires clothing, suits, or uniforms for the purpose of earning income - and in claiming CCA thereon in that regard - where such property is acquired specifically for the purpose of earning income from self-employment. In this regard, the jurisprudence has established that any expense that must be incurred by an individual in order to report for work is usually considered to be an expense of a personal nature.
Thus, where a taxpayer acquires clothing that can be used in both the taxpayer's business and personal activities, the Canada Revenue Agency takes the position that the expense is a personal or living expense that is not deductible by reason of paragraph 18(1)(h).
In this case, we are of the view that the cost of steel-toed work boots and flame-retardant clothing of a self-employed person who carries on a business as a welder are personal expenses that are not deductible from the self-employed person's business income where such clothing can be used otherwise than in the course of carrying on the business. As a result, these expenses are not eligible for CCA. Our position might be different if these boots and clothing were used by the self-employed worker only in the course of performing the worker’s welding activities.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. Requests for this latter version should be made by you to Ms. Celine Charbonneau at (819) 994-2898. In such cases, a copy will be sent to you for delivery to the taxpayer.
We hope you find these comments of assistance. Should you require additional information regarding the content of this document, please do not hesitate to contact us.
François Bordeleau, Advocate
Manager
Business and Partnerships Division
Income Tax Rulings Directorate.