Principal Issues: Whether small tools costing less than $500 would be deductible in computing income from a business or property as an expense?
Position: Question of fact, but generally yes.
Reasons: See below.
September 25, 2019
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable Diane Lebouthillier, Minister of National Revenue, received your correspondence of August 28, 2019, about small tools costing less than $500. She has asked me to reply on her behalf.
I understand that you want clarification about whether small tools costing less than $500 are deductible from the income of a business as an expense when calculating a self-employed taxpayer’s income from a business or property under subsection 9(1) of the Income Tax Act.
Whether any expenditure is incurred on account of income or capital depends on multiple factors. The purpose of the expenditure from a practical and business perspective should also be taken into account to assist in determining whether the amount can be expensed immediately or is capitalized.
Generally, small tools that cost less than $500 are fully deductible in the year the expense is incurred for the purpose of gaining or producing income. A taxpayer may claim them as an expense or claim capital cost allowance (CCA) by including the cost in Class 12 (with a CCA rate of 100%). Either method is acceptable.
For more information on CCA, see Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income, available at canada.ca/en/revenue-agency/services/forms-publications/publications/t4002, and Income Tax Folio S3-F4-C1, Capital Loss Allowance, available at canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plans-folio-4-capital-cost-allowance/income-tax-folio-s3-f4-c1-general-discussion-capital-cost-allowance.
I appreciate the opportunity to respond to your concerns and trust the information I have provided is helpful.
Sincerely,
Geoff Trueman
Assistant Commissioner
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency
Amanda Couvrette
613-670-9041
2019-082167