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Trades and contractors

Bookkeeping for contractors
and trades in Canada

For self-employed electricians, plumbers, HVAC techs, carpenters, painters, landscapers and other trades who file a T2125. What you can deduct, where it goes on the form, and the slips and registrations CRA expects.

The short answer

  • Tools under $500 are mostly deductible in full the year you buy them. Tools of $500 or more are deducted over several years (20% a year).
  • Supplies you use up on jobs are a regular expense (line 8811).
  • If most of your income is construction and you pay a subcontractor more than $500 in a year, you file T5018 slips.
  • Your truck or van is deductible at your business-use %, which needs a logbook.
  • Register for GST/HST once revenue passes $30,000 in a quarter or four quarters in a row.

Tools: expense now or over several years?

CRA treats most tools as capital property, which you deduct through capital cost allowance (CCA) on line 9936, not as a regular expense. The $500 line matters:

  • Under $500 a tool: Class 12 at 100%. Most small tools are not subject to the half-year rule, so they are fully deductible in the year you buy them.
  • $500 or more a tool: Class 8 at 20% a year on the remaining balance. A $2,000 compressor is deducted over several years, not all at once.

The tradesperson's tools deduction you may have heard about is an employment expense (line 22900) for employees. When you are self-employed, your tools go through CCA on your T2125.

Where common trade expenses go on the T2125

Small tools (under $500 each)
CCA Class 12, mostly 100% in year one
Line 9936
Tools and equipment ($500 or more)
CCA Class 8, 20% a year
Line 9936
Supplies you use up on jobs
Expense
Line 8811
Subcontractors (services)
Expense
Line 9270
Truck or van running costs
Business-use % of costs
Line 9281
Cellphone (business part)
Expense
Line 9220
Insurance (liability, tools)
Expense
Line 8690
Licences, permits, memberships
Expense
Line 8760
Advertising, website, signs
Expense
Line 8521
Accountant and legal fees
Expense
Line 8860

Enter only the business part of each expense. If you are registered for GST/HST, enter amounts without the GST/HST you claim back as input tax credits.

Paying subcontractors: T5018 slips

If more than 50% of your business income comes from construction activities, you must report payments to Canadian-resident subcontractors for construction services when you paid one of them more than $500 in the year, not counting GST/HST. You give each subcontractor a T5018 slip and file a T5018 return, due 6 months after the end of the reporting period you choose (the calendar year or your fiscal period).

The easiest way to stay ready: record every subcontractor payment with their business name and number as you pay them, so the yearly totals are already there.

Your truck or van

You can deduct the business part of your vehicle costs: fuel, repairs, insurance, licence and registration, and loan interest, plus capital cost allowance on the vehicle itself. The business part is your business kilometres divided by the total kilometres you drove, which is why CRA expects a logbook with odometer readings at the start and end of the year.

Driving from job site to job site, or to pick up materials, is business driving. A pickup or van used mainly to haul goods or equipment can fall in a different CCA class from a passenger vehicle, so tell your accountant what you use it for.

GST/HST for trades

You must register for GST/HST once your taxable revenue goes over $30,000 in a single calendar quarter or over four consecutive calendar quarters. Once registered, you charge GST/HST on your work and claim back the GST/HST you paid on tools, materials, fuel and other business costs as input tax credits.

Keep the supplier's GST/HST number for purchases of $100 or more. You need it to claim those input tax credits. More on the $30,000 threshold.

How SnapBooks helps a one-person trade business

  • Snap receipts at the supply store. AI reads the vendor, amount, GST/HST and the supplier's GST number.
  • Quotes and invoices with your GST/HST number, sent by email.
  • A KM logbook that turns your trips into the T2125 vehicle deduction.
  • A tax time checklist and an export your accountant can file from.

SnapBooks is for sole proprietors. It does not run payroll or file T5018 slips for you.

Common questions

Can I deduct my tools in full the year I buy them?
Tools that cost less than $500 each go in CCA Class 12, and most are fully deductible in the year you buy them. A tool that costs $500 or more goes in Class 8, which is claimed at 20% a year on a declining balance, so it is deducted over several years.
What about the tradesperson's tools deduction?
That deduction is claimed as an employment expense on line 22900, so it is for employed tradespeople. If you are self-employed, you claim tools on your T2125 instead: supplies as an expense and tools through capital cost allowance (line 9936).
Where do materials and job supplies go?
CRA describes line 8811 as items the business uses up to provide its goods or services, such as cleaning supplies used by a plumber. If you sell goods, for example by supplying and installing products, the cost of those goods belongs in the cost of goods sold section, and your accountant can help you split it.
Do I have to issue T5018 slips to my subcontractors?
You must if more than 50% of your business income comes from construction, you paid Canadian-resident subcontractors for construction services, and you paid a subcontractor more than $500 in the year, not counting GST/HST. T5018 returns are due 6 months after the end of the reporting period you choose (the calendar year or your fiscal period).
Can I deduct my truck or van?
Yes, the business part of it. Keep a logbook of business trips and odometer readings, and you claim your business-use % of fuel, repairs, insurance, licence and registration, and loan interest (line 9281), plus capital cost allowance on the vehicle (line 9936). A pickup or van used mainly to haul goods or equipment can fall in a different CCA class from a passenger vehicle.
When do I have to register for GST/HST?
Once your taxable revenue goes over $30,000 in a single calendar quarter or over four consecutive calendar quarters. Below that, registering is optional, and registering early lets you claim back the GST/HST you pay on tools, materials, and fuel.
Can I deduct my cellphone?
You can deduct the business part of your cellphone airtime on line 9220. You cannot deduct the basic monthly rate of a home phone line, but you can deduct business long-distance calls made on it.

Sources

General information, not tax advice. Your accountant can confirm how these rules apply to you.

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Sources and further reading

Tax rules change. Check canada.ca for the current rules before you file.

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