Ottawa, ON — The new federal budget, announced May 2, 2006, includes a new Canada Employment Credit that will provide relief on the first $1,000 of employment income, in recognition of expenses incurred by employees. Budget 2006 also includes a new deduction of up to $500 to tradespeople for the cost of tools in excess of $1,000 that they must acquire as a condition of employment.
Many employed tradespeople must provide their own tools as a condition of employment. The lack of tax recognition for the cost of these tools may contribute to the difficulties employers experience in finding skilled tradespeople, according to the federal government.
As an example, a tradesperson earning $60,000 with $1,500 in tools expenses in 2007 will be able to claim the new Canada Employment Credit on $1,000 and deduct $500 under the new tools deduction. The two measures will reduce federal income taxes by $265.
The tools deduction and the Canada Employment Credit together will provide tax relief to about 700,000 employed tradespeople.
Budget 2006 also proposed to increase to $500 from $200 the limit on the cost of tools eligible for the 100-per-cent capital cost deduction. This measure will provide tax relief and reduce red tape for self-employed tradespeople and small businesses.
These measures are effective for tools acquired on or after May 2, 2006. Also, any tools acquired after July 1, 2006, will be taxed at a GST rate of 6%, 1% less than the previous rate.