Personal-Use Property and Capital Gains Tax in Canada

You may have a boat you no longer use, a piece of art that has gone up in value, or jewellery you inherited and now want to sell. The first question is usually whether you owe tax, and the second is whether a loss on the sale helps you.

This article explains the general capital gains steps that apply to property you sell, how losses work, and the reporting you should expect. Items kept for personal enjoyment can be subject to special rules, so the details for your item are worth confirming with an accountant or lawyer.

This article covers Canadian federal tax law, which applies in every province.

Start with the basic gain calculation

For property that is a capital asset, you subtract the property's adjusted cost base (ACB) and the outlays and expenses of selling from the proceeds of disposition. The result is your gain or loss.

The CRA gives an example: 400 shares sold for $6,500 with a $60 commission and a $4,000 ACB produce a gain of $2,440, of which half, $1,220, is the taxable capital gain. The same arithmetic applies to any property that is treated as a capital asset.

ACB is usually the cost of the property plus the expenses of acquiring it, such as commissions and legal fees. Maintenance and repairs are current expenses and cannot be added to the cost base. This matters for a boat or a car, where upkeep costs are common.

How much of the gain is taxed

The taxable capital gain is one-half of the capital gain. A proposed increase to two-thirds was cancelled, so the one-half rate applies to gains realized in 2024, 2025 and 2026.

If your taxable capital gains exceed your allowable capital losses, the difference goes on line 12700 of your T1 return. It is added to your other income and taxed at your marginal rates, not at a separate flat rate.

Losses on items you sold

Allowable capital losses are one-half of a capital loss. A net capital loss can be applied only against taxable capital gains, so it cannot reduce your salary or other ordinary income. Carrying a net capital loss back may also reduce a capital gains deduction (lifetime exemption) claimed in that year or later years.

Unused net capital losses can be carried back three years and carried forward indefinitely, and losses from earlier years are applied oldest first. To carry a loss back, you use Part 5 of Form T1A rather than filing an amended return for the earlier year.

Whether a loss on a particular personal item can be used at all, and how much of it counts, depends on how that item is classified. That is the point to confirm before you assume a loss will help.

What to watch for when you report the sale

• Report the sale in the calendar year it happens, and file a return even if no tax is owing.
• Use Schedule 3, Part 3, with columns for proceeds, ACB, outlays and expenses, and the resulting gain or loss.
• Convert foreign-currency amounts to Canadian dollars: proceeds at the rate when you sold, ACB at the rate when you acquired the item, and outlays at the rate when you incurred them.
• A gift of capital property to someone other than a spouse or common-law partner is treated as a sale at fair market value on the date of the gift.
• A sale to a relative for less than fair market value is generally treated as if you received fair market value.

On death, the deceased is considered to have sold capital property, and an heir generally takes the deceased's deemed proceeds, usually fair market value just before death, as their cost. Transfers to a spouse or common-law partner can be treated differently.

What to do next

• Find what you paid and keep receipts for any costs of buying or selling.
• Get a written valuation or sale record showing the price and date.
• Note whether the item was inherited, gifted or bought, since that affects your cost.
• Ask an accountant or lawyer how the special rules for personal-use items apply to your sale and whether a loss can be claimed.
• Keep your records with your Schedule 3 working papers.

Frequently asked questions