Income tax is not a concern for most Canadians selling unwanted items. However, income tax may apply based on the use of the property you are selling or how often you sell items.
Knowing the tax rules can help you avoid interest and penalties.
If you are selling unwanted household goods and the selling price is less than what you paid, then there is no capital gain to tax! (Note that you cannot claim a capital loss either – see below).
Personal Use Property
There is a special category of personal property known as personal use property (PUP).
Personal use property includes most items you own and hold for your own personal use (hence the name!).
The use of the property, rather than the property itself, determines whether it is personal use property.
Most personal use property sold will not have a capital gain because the selling price is less than its cost. However, some types of property increase in value (vacation property for example).
If you sell personal property for more than you paid for it, you are required to report and claim the gain as income on Schedule 3 (any loss on the sale is not allowed under Canadian tax law – See the exceptions under Listed Personal Property below).
Even if you sell personal property for more than you paid, there is general exemption on the first $1,000 of the gain. These rules work as follows:
- If you paid less than $1,000 for the item, the cost is deemed to be $1,000, and
- If you sold the item for less than $1,000 the price is deemed to be $1,000.
There are special rules that exempt the sale of your principal residence from income tax.
Special Rules For Listed Personal Property
There is a special type of personal use property called Listed Personal Property (LPP).
Listed personal property includes the following:
- Stamp & coin collections, and
- Artwork and rare manuscripts.
You also report any gains on the sale of these items Schedule 3 of your tax return.
What makes listed personal property unique? If you have a capital loss on the sale of listed personal property, the loss can be used to offset other capital gains.
Always remember to keep the receipts for any capital property!
eBay Power Sellers & Frequent Sellers
If you frequently garage “sail” and then flip sell the goods at another garage sale or on-line, you could be considered a business.
The difference between a business and an individual selling some personal property is the intent. If you frequently flip goods you purchase, you may be a business.
The bad news about being a business is that 100% of all gains are included in your income. The good news is that losses are 100% claimable and you can deduct other expenses incurred to run your business.
If you’re not sure if you would be considered a business, it’s best to get some help.