A Capital Property is that kind of property, which creates capital gains or losses when it is disposed of. Capital property can be tangible and intangible, fixed or circulating assets, or non-depreciable and depreciable. Capital Property does not include properties such as inventory - trade assets of a business
- Tangible capital property are items such as buildings, cars, factory machines, boats, cottages, etc.. They have a physical form and you can touch them.
- Intangible capital property are things such as tenancy rights, patents or trademarks. These things you can not "touch": they don't have a physical form (Canada Revenue Agency, 2018, page 5, 6).
Non-Depreciable and Depreciable Capital Properties
Capital properties are mainly divided into two types: Depreciable and Non-depreciable.
- Non-depreciable property is a property that does not depreciable. If non-depreciable property gains its value, we could say there is a capital gain. On the other hand, if there occurs property loss, then we can name it a capital loss. For example, the non-depreciable capital property may be land or shares held as an investment. Property is not Capital Property if the non-depreciable property is sold, and it does not result in capital loss or capital gain.
- Depreciable property is any property that is used to produce and gain an income. The taxpayer can make a deduction for capital cost allowance. For example, a machine that is used on the production line depreciates over time. The deduction of depreciable capital property is called Capital Cost Allowance [CCA] (Greenan A.J., 2007, page 89, Spenceley R., 1999, page 262).
Capital Gain and Capital Loss
Capital Gain occurs when the capital property is sold for more than its total of adjusted cost base summed with expenses of selling a property. In the situation when property is sold for less than its cost summed together, there occurs then Capital Loss. Situations where capital property is considered as sold, are for example:
- Exchanging one property for another one,
- Property is given as a gift for somebody,
- Property is stolen or destroyed (Canada Revenue Agency, 2018, page 6).
Cost of capital property
Cost of capital property depends on how you bought/acquired it and what type of property it is. It is its actual cost or deemed if it is hard or impossible to identify. Cost of capital property also includes such things as improvements and additions imposed or installed on a specific property (Canada Revenue Agency, 2018, page 5).
- Bollen L., Vergauwen P., Schnieders S., (2005) Linking intellectual capital and intellectual property to company performance "Accounting and Information Management Department, Faculty of Economics and Business Administration" Netherlands
- Canada Revenue Agency, (2018), Capital Gains, Canada
- Greenan A.J.,(2007), The Executor's Handbook, CCH Canadian Limited, Canada
- Rosentreter K., (2005), Wealthbuilding Insomniac Press, Canada
- Sprankling G.J., (2014), The International Law of Property Oxford University Press, UK
- Spenceley R., (1999), Estate Administration in Ontario, CCH Canadian Limited, Canada
Author: Mateusz Paduch