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Disposal of Tools
Gain on Disposal of Tools
Income Tax Act s. 56(1)(k)
When tools are disposed of for which an employee tools deduction was previously claimed, any gain from the disposal must be included in income on line 130 of the tax return.
The gain on sale of these tools is calculated as the proceeds from sale, less the adjusted cost of the tool. The adjusted cost is the original cost reduced by any tool deductions claimed.
The Quebec calculation is similar. Quebec has a fillable form, TP-75.2-V, which you can complete, and it will calculate the appropriate amount to include in income.
When the tools deductions are claimed, keep the records that will allow the calculation of the adjusted cost of each tool purchased.
How is the adjusted cost calculated?
Our Employee Tools Deduction Calculator will do this calculation for you.
The adjusted cost of an individual tool is calculated as
D - (D x [E / A])
where
D = the original cost of the eligible tool.
E = the total of the tradesperson's tools and apprentice mechanic tools deductions that you claimed in the year that the tool was purchased (assume the entire apprentice mechanic tools deduction was claimed in the year, even if a portion was carried forward).
A = the total cost of eligible tools that you purchased in that year.
Example
We will use the examples used in the tradesperson's tools deduction and the apprentice mechanic's tools deduction. The total cost of tools purchased in 2020 is $3,000. Let's say there are 2 individual tools, for $2,000 plus $1,000. Assume that in 2023, the higher cost tool is sold for $1,200.
The adjusted cost of the tool is calculated using:
 | A = Tool purchases in 2020 = $3,000 |
| D = Original cost of sold tool = $2,000 |
| E = Tools deductions of $1,000 + $1,227.50 = $2,227.50 |
Adjusted cost = $2,000 - ($2,000 x [$2,227.50 / $3,000]) = $515.
Gain on sale = $1,200 - $515.00 = $685. This amount would be included in income on line 13000 (other income) of the tax return for 2023.
Canada Revenue Agency (CRA) Resources
T4044 Employment Expenses - See Disposition of Tools
Revised: September 20, 2024