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Catch the tax breaks when you sell off tangible assets
Wednesday, January 22, 2003
When you sell off tangible assets, you can catch a break from the tax collector, who won't touch profits unless you make more than $1,000.
Whether you buy them for investment purposes or for a hobby, tangible assets, such as art works, antiques and collectibles, are all usually considered by the Canada Customs and Revenue Agency (CCRA) to be items of personal-use property, a category that also includes cars, boats and cottages, according to Karen Yull, a tax principal at Grant Thornton LLP.
And when you sell a piece of personal-use property, capital gains taxes are not assessed on the first $1,000 you make on the deal, says Ms. Yull. She notes that this threshold applies to each item of property sold, unless you sell a collection of items, such as a set of coins or cutlery, that CCRA might consider to be a single property.
"You will never have a capital gain unless the proceeds are at least $1,000," she says. But you will have to avoid, she adds, making so much money from your investments in tangible assets or organizing your buying and selling in such a way that the CCRA views your activity as a business, rather than a hobby, in which case your collection will no longer have the tax advantages of personal-use property.
Ms. Yull notes that there are special tax rules applying to works of art, rare books and manuscripts, coins, stamps and jewellery. All of these come under the category of "listed personal property."
These, too, are eligible for capital-gains tax, subject to the same $1,000 exemption, but the difference is that a capital loss can be deducted against capital gains on listed property and a loss can be carried back three years or forward seven years.
Another tax break is available in the form of a tax credit for donations of Canadian art or other Canadian cultural property to an institution designated by the Minister of Canadian Heritage. This tax provision was used a few years ago in some organized tax-avoidance schemes and the CCRA cracked down, but an individual taxpayer making a legitimate donation can still get a credit, Ms. Yull says.
"If you go out and find a piece of art and you pay $250 for it, then you manage to get it valued at $1,000 and donate it to a charity, you could benefit," she says.
Gena Katz, a principal at Ernst & Young, says she doesn't recommend that clients invest in tangible assets because it is too risky. But people who collect things for a hobby sometimes make handsome tax-free profits on the side.
"Say you managed to purchase fine wine for $30 a bottle and now its worth $1,000. You pay no capital gains tax," she says.
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