Personal use property (“PUP”) is defined generally as property that you or a non-arm’s length person uses primarily for personal purposes. PUP typically includes property such as your home, cottage, car, furniture, appliances, clothing, art work, bicycles, and so on.
If you sell a PUP at a gain, one-half of it is included in your income as a taxable capital gain. This is the same rule that applies to any capital property.
If you sell a PUP at a loss, the loss is normally denied. However, a loss may be claimed if the property is a “listed personal property”, though only against gains from listed personal property.
Listed personal property is defined to mean the following types of property:
- A work of art;
- A rare book, folio or manuscript;
- Stamps; and
Losses from listed personal property can offset gains from listed personal property, but not other property. If your gains from listed personal property exceed your losses for a taxation year, one-half of the net amount is included in your income. If your losses exceed your gains for a taxation year, your net gain is nil. The excess losses can be carried forward 7 years or back 3 years to offset gains from listed personal property in those years.
In 2017, you sell a piece of art (a listed personal property) at a gain of $10,000. In 2015, you sold a piece of art at a loss of $4,000, and you had no gains in that year from listed personal property.
In 2017, you can carry forward the $4,000 loss against the $10,000 gain, resulting in a $6,000 gain. Half of that, or $3,000, will be included in your 2017 income.
One thousand dollar threshold
All PUP, whether listed personal property or not, is subject to a “de minimis” threshold in terms of the cost and proceeds of disposition. Basically, where either the cost or the proceeds of disposition is less than $1,000, it is deemed to be $1,000. The threshold is meant to ignore PUP that is of relatively low value. (If you buy PUP for $100 and sell it for $900, both amounts are deemed to be $1,000 so there is no gain or loss for tax purposes.)
In 2017, you sell a piece of art that cost you $800. You sell it for $5,000.
Your cost of the art will be deemed to be $1,000, so that you will have a $4,000 gain. Half of that will be included in your income.
You also sell a rare book that cost you $900. You sell it for $800.
Your cost and sales proceeds for the book will be deemed to be $1,000, so you will have no gain or loss from the book.