When you dispose of personal-use property, you may incur a capital gain or loss. The Canada Revenue Agency requires you to report gains as income, but it does not necessarily allow you to claim personal-use property losses against your income.
Whether or not you can claim a personal-use property loss depends on a range of factors.
Losses from Personal-Use Property
In most cases, if you have a capital loss from the personal-use property, the CRA considers the loss to be a personal expense. For example; if you buy a car, use it for a few years and then sell it at a loss, you cannot claim the loss on your income tax return. Rather, you need to embrace the loss as the cost of owning and using the car.
Listed Personal-Use Property Losses (LPP)
If you suffer a capital loss due to the disposition of personal-use property that is a collector’s item or a piece of art, you can claim that loss on your income tax return. In particular, the CRA allows you to claim losses associated with prints, etchings, drawings, paintings, and sculptures as well as jewellery, rare folios, manuscripts or books, stamps, and coins. LPP losses can be claimed against capital gains from the sale of LPP only. You cannot apply the loss against any other type of capital gain.
Bad Debts
If you sell a personal-use property to someone at arm’s length from you and that person fails to pay you, you may be able to claim a loss for the bad debt. To claim the loss, you must have exhausted all means to collect the debt.
For example; if you sold a boat to your son and he failed to pay you, you could not claim it as a personal-use property loss as your son is not at arm’s length to you. Similarly, if you make no effort to collect the debt, you cannot claim the loss; the CRA expects you to make a solid debt collection effort.
Calculating Personal-Use Property Losses
Essentially, to calculate a capital gain or loss, you subtract the adjusted cost base, ACB (the price you paid to acquire the asset as well as any costs incurred to buy it) from the amount you earned disposing of it (proceeds).
However, the CRA uses a slightly different formula to calculate personal-use property gains and losses. If the ACB is less than $1,000, you use $1,000 as the ACB anyway. Similarly, if you disposed of the item for less than $1,000, you use $1,000 as the value of the disposition.
For example; if you sold a boat for $1,500 and you acquired it for free, your capital gains would normally be $1,500. However, as the CRA instructs you to use $1,000 as the ACB, your personal-use property gain is only $500.
The difference in how you calculate most capital gains and gains from personal-use property lowers the amount of income you have to declare on your return in regard to personal-use property gains. However, it doesn’t offer any significant advantages when you are claiming losses.
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