20 June 2023 STEP Roundtable Q. 1, 2023-0961341C6 - Personal-Use Property

Unedited CRA Tags

40(2)(g)(iii), 46(1), 54, 70(5)

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Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Does subsection 46(1) of the Act apply to property of an estate that was personal-use property of a deceased taxpayer but is not personal-use property of the estate.

Position: No. The estate's adjusted cost base of the property will continue to be determined by paragraph 70(5)(b) of the Act.

Reasons: Subsection 46(1) of the Act applies only to personal-use property.

2023 STEP CRA Roundtable – June 20, 2023
QUESTION 1. Personal Use Property

Personal use property (“PUP”) is property held primarily for the personal use or enjoyment of an individual.

An individual dies with various personal possessions (e.g., furniture, artwork of nominal value, etc.) that are PUP to the individual, and the individual paid less than $1,000 for each property. Per paragraph 46(1)(a), the minimum adjusted cost base of an item of PUP is $1,000. Assume post death none of this PUP is used by a beneficiary for personal use or enjoyment. (For example, it is moved into storage and later sold to an auction house).

Assume these properties fetch less than $1,000 per item.

In this case, can the estate claim capital losses when the properties are sold by the estate?

CRA Response

Personal-use property is defined in section 54 of the Act.i Generally speaking, it is a property owned by a taxpayer that is used primarily for the personal use or enjoyment of the taxpayer or a person related to the taxpayer. On a disposition of PUP, subsection 46(1) deems the adjusted cost base (“ACB”) to be the greater of $1,000 and the amount otherwise determined. It also deems the proceeds of disposition to be the greater of $1,000 and the amount otherwise determined. Subparagraph 40(2)(g)(iii) contains a special rule that deems any capital loss from the disposition of PUP to be nil.

As stated at the 2011 CRA STEP Roundtableii, a deceased person and their estate are distinct taxpayers. Therefore, the determination of whether a property owned by an estate is PUP must be made on its own facts and merits. Accordingly, if a property was not used by the beneficiaries of the estate or persons related to them during the period following the death and before its sale, the property would not meet the definition of PUP.

Where paragraph 70(5)(a) of the Act applies to a property, paragraph 70(5)(b) applies to any person who acquires the property as a consequence of the death a taxpayer. The property is deemed to have been acquired at the time of death at a cost equal to its fair market value (“FMV”) immediately before the death. In the case at hand, if the personal possessions are PUP of the estate, subsection 46(1) could apply to modify the estate’s ACB and proceeds of disposition for the purposes of computing any capital gain or loss on a disposition of the property. However, if the personal possessions are not PUP of the estate, subsection 46(1) will have no application. Therefore, paragraph 70(5)(b) will continue to apply to the estate and its ACB of the personal possessions will be their FMV immediately before the death.

If the personal possessions are not PUP of the estate, a capital loss realized on the sale of the property by the estate would not be deemed to be nil pursuant to subparagraph 40(2)(g)(iii) of the Act. Accordingly, provided the property is not acquired by a person affiliated with the estate, a capital loss realized on the sale of the personal possessions by the estate would be deductible against capital gains of the estate.

Matthew Ross
2023-096134

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 The Act means the Income Tax Act R.S.C. 1985 (5th Supp.) c.1 as amended from time to time and consolidated to the date of this response and, unless otherwise expressly stated, every statutory reference herein is a reference to the relevant provision of the Act.

2 See 2011-0401871C6.

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Summaries

Summary Under

Tax Topics - Income Tax Act - Section 46 - Subsection 46(1)

personal-use property (PUP) of the deceased may not be PUP of the estate

f an individual at death held various personal-use properties (“PUP”), each with a cost and an FMV of under $1,000, and there was not personal use of those items following death (e.g., they were put in storage), could the estate claim capital losses when they were sold?

CRA noted that pursuant to s. 46(1) each such property would be deemed to be disposed of by the deceased for proceeds of disposition of $1,000 and to have a deemed ACB of $1,000 (and also noted that any capital loss of the deceased from the disposition of PUP would be deemed to be nil by s. 40(2)(g)(iii).)

However, as the estate was a distinct taxpayer from the deceased, a factual determination would need to be made as to whether it was PUP to the estate. The estate’s ACB pursuant to s. 70(5)(b) would be the FMV of the property immediately before death and, if the property was not PUP to the estate, its subsequent sale could give rise to a capital loss.

Summary Under

Tax Topics - Income Tax Act - Section 54 - Personal-Use Property

separate testing of whether PUP of deceased is PUP of the estate

CRA confirmed that since an estate is a separate taxpayer from the deceased, items that were personal-use property (PUP) of the deceased and, thus, deemed on death to be disposed of for minimum proceeds and ACB of $1,000 per item pursuant to s. 46(1), could potentially not be PUP to the estate (e.g., they could be put in storage). If not PUP to the estate, they would be deemed pursuant to s. 70(5)(b) to have an ACB equal to their FMV immediately before death (without regard to the $1,000 rule) and any subsequent sale would generally give rise to a capital gain or loss computed in the normal way.

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20 June 2023 STEP Roundtable Q. 1, 2023-0961341C6 - Personal-Use Property

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