November 2020 Newsletter

If you sell a capital property for more than your cost of the property, you will have a capital gain. More technically, if your “proceeds of disposition” exceed your “adjusted cost base” of the property plus any sales costs like commissions, you will have a capital gain. One-half of the capital gain is included in your income as a “taxable capital gain”.

The lifetime capital gains exemption (technically called capital gains deduction) allows Canadian resident individuals to earn tax-free capital gains on certain kinds of property (active business shares and farm/ fishing property), up to the exemption amount.

If you sell a personal-use property (PUP) at a gain, one-half of the amount is included in your income as a taxable capital gain.

On the other hand, if you sell a PUP at a loss, the loss is not allowed for income tax purposes (except in the case of “listed personal property”, as explained below).

If you own investment properties, such as stocks, bonds, and mutual funds, you will likely incur some investment fees. Some of the fees are deductible for income tax purposes. Some are not.

Personal to income use

If you use a property for personal purposes and subsequently start to use the property for income-earning purposes, you will have a deemed disposition of the property for fair market value proceeds and a deemed new cost of the property at fair market value.

Although this rule seems strange, the main rational for the rule is to prevent you from claiming capital cost allowance (CCA − tax depreciation) or a loss on the property based on its original cost. For example, if you purchase a table for $5,000 for personal purposes and later move it to your office for business purposes when it is worth only $2,000, it would not make sense to allow you tax deductions based on the original value, since it depreciated while you were using it personally.

In this regard, if the fair market value of depreciable property at the time of the change in use happens to be greater than the original cost, the deemed acquisition cost for CCA purposes will normally be half-way between the original cost and the fair market value.

Car expenses allowed for employee travelling from home office

In general terms, an employee can deduct car expenses incurred for travelling “in the course of employment”, if that is required under the terms of the employment and the employer provides the employee with a T2200 form. Certain other conditions apply.