Trades & Contractor Tax Guide
Electricians · Plumbers · HVAC · Carpenters · General Contractors
The Work Is the Same.
The Tax Isn't.
Two people can do identical work on the same site and file completely different returns — because how you're paid decides how you're taxed, and most tradespeople were never told which category they're in. This guide covers the three ways it goes, the deductions that actually apply to trades, and the one filing obligation that catches contractors who hire other contractors. It's general information. When we prepare your return, we go through each item against your own records.
Employee, Subcontractor, or Incorporated
There are three ways you get paid in the trades, and they are not interchangeable. On a T4, tax and CPP come off every cheque and your deductions are narrow but real. As a subcontractor, you invoice, nothing is withheld, and you file a T2125 with your T1. Incorporated, the company files its own T2 and pays you by salary or dividend, which is a separate decision with its own arithmetic.
Here's the part that surprises people: which one you are is not up to you or the person hiring you. CRA looks at the substance — who controls how and when the work is done, who supplies the tools and the truck, whether you can profit or lose on a job, and how integrated you are into the other business. Being paid by invoice does not make you self-employed if everything else looks like employment.
It matters because a reclassification is expensive on both sides, and it reaches backwards. If you work steadily for one general contractor, use their equipment, and are told when to show up, that arrangement is worth a look before CRA takes one.
On a T4: The Tools Deduction
Employed tradespeople can deduct part of what they spend on tools. The deduction is capped at $1,000, and it's reduced by a threshold tied to the Canada employment amount, which moves each year — so a modest tool year can work out to nothing, and a heavy one is worth claiming properly.
Three conditions catch people out. The tools have to be bought new, not second-hand or inherited from a retiring journeyman. Your employer has to certify on a T2200 that the tools were a condition of the job — without that signed form, the claim doesn't get made. And you need the receipts, which is the part that fails most often, because tool receipts live in a truck.
Apprentice mechanics are treated separately and more generously: there's an additional deduction on top of the tradesperson's one, for apprentices registered in a program leading to a licence to repair self-propelled motorized vehicles.
One that gets left on the table: if you're deducting employment expenses, you can often claim a GST/HST rebate on those same expenses using form GST370. It's real money and it's separate from the deduction itself.
The Truck
For most tradespeople the vehicle is the single largest claim, and it's a percentage rather than a pile of receipts: business kilometres over total kilometres, applied to your real running costs. It stands or falls on a logbook, and a logbook written the following April isn't one. Odometer at both ends of the year, trips recorded as you make them.
The line that gets misread is commuting. Driving from home to the same shop every morning is commuting, not business travel, no matter how many tools are in the back. Travel between job sites during the day is business. And where you have no fixed workplace and go straight from home to varying sites, more of that mileage can qualify — but it turns on the facts of your arrangement, and it's exactly the claim CRA asks to see supported.
HST, and Quoting Yourself Into a Problem
You're a small supplier until your revenue passes $30,000 over four consecutive calendar quarters, or in a single quarter on its own. Past that line, registering isn't optional and you have 29 days to do it.
The trades-specific trap is quoting. You price a season's work HST-out, cross the threshold in August, and discover you owed HST from the date you crossed rather than the day you registered. Tax you never collected is tax you still owe, and it comes straight out of your margin on jobs already done. If you're anywhere near $30,000, watch the rolling four-quarter total, not the calendar year.
Registering voluntarily below the threshold is sometimes the better call, because it lets you recover the HST on trucks, tools, and materials — which in a capital-heavy trade can be worth more than the paperwork costs. That's a conversation to have before you decide, not after. The wider picture is in our Self-Employed Tax Guide.
If You Pay Subcontractors: the T5018
This is the obligation almost nobody arrives knowing about. If more than half your business income comes from construction and you pay subcontractors, you have to file a T5018 Statement of Contract Payments — an information return listing what you paid each one.
It kicks in at $500 per subcontractor for the reporting period, measured before HST, though the figure you report on the slip includes it. You pick whether the reporting period follows your calendar or fiscal year, and the return is due six months after that period ends.
It's a reporting requirement rather than a tax, so nothing is owed on it — but penalties for not filing accumulate per slip, and it's the kind of thing that surfaces during a review of something else entirely. If you sub work out, this belongs in your year-end routine.
Tools, Equipment, and the Line Between Them
Self-employed, your tools are handled differently depending on size. Consumables and small hand tools are an expense in the year you buy them. A compressor, a scissor lift, a work truck, a trailer — those are capital, added to a CCA class and written down over years rather than deducted at once.
Getting it backwards in either direction is a common correction: expensing a $9,000 machine overstates this year and invites a question, while capitalizing a $60 tool bag just makes your books longer. The practical rule is that anything with a working life beyond the current year is probably capital, and anything that gets used up isn't.
What Usually Can't Be Claimed
Honesty is part of the service. Protective gear is deductible — steel toes, hi-vis, hard hats, gloves — because it's genuinely job-specific. Ordinary clothing isn't, and doesn't become so because you wore it to a site. Meals on a job are 50% at best and only with a real business purpose behind them; a coffee on the way to work is not a business meal. The full phone bill isn't a business expense when the household uses it, though a reasonable business share is. And union dues and licensing or certification fees are claimable, on their own line, which is worth knowing because they're routinely missed.
We'd rather tell you this up front than file a return that invites a review two years later. What you can claim, we'll find. What you can't, we'll say so plainly.
Before You File
Four Quick Checks
Know which category you're in
Employee, subcontractor, or incorporated. If you've been told "you're a contractor" but the day-to-day looks like employment, get it checked before CRA does.
A signed T2200, if you're on a T4
No signed form, no tools deduction and no employment expenses. Ask your employer in January, not in April when payroll is buried.
A logbook that was kept, not reconstructed
The truck is your biggest claim and the first one questioned. Odometer at both ends of the year, trips recorded as you go.
Books that are actually current
Deposits and receipts sorted as they happen beats a shoebox in March. If it's already a shoebox, bookkeeping costs less than the alternative.