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Making Rental Payments to Employees Who Use Their Own Tools

When employees provide their own tools, your company saves money. Even if you’re paying rent to your workers for using their own tools and equipment, you can save money at tax time. To ensure you get every possible deduction or credit at tax time, keep track of all business-related expenses.

Use of Employees’ Tools and Equipment

Canada’s tax laws anticipate that the tools your employees use to do their jobs might belong to the worker rather than the employer. As a result, many small businesses pay their workers who use their own tools for that use plus wear and tear.

While it’s standard practice in some industries to provide rental payments to workers who use their own tools, it’s easy to overlook for new small business owners or for those in industries where the practice proves less common. Technically, these payments aren’t wages. As a result, you should consider tax benefits every time your company cuts a cheque, and that’s doubly true if you make these payments as part of your employees’ pay cheques.

Employee Tool and Equipment Example

Imagine you operate a forestry business and send several workers to extremely remote job sites. It’s impractical for the workers to start the day by driving to your shop and packing the company’s saws, straps, and wedges. In cases like this, it’s normal for workers to arrive at the site in their own trucks and use their own tools, making it easier and more convenient to reimburse them for use and wear on their equipment.

How to Make the Tax Claim

To take full advantage of the benefit, itemize every payment you make for equipment rentals. Keep copies of your records on hand in case the Canada Revenue Agency (CRA) requests more information. Record your expense in Box 14 of Form T4, where you usually include tips, vacation pay, and speakers’ fees.

As a small business owner, it’s important to know what tax breaks apply to your situation and what information you need to make a claim. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.

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