Today, L is for Listed Personal Property (LPP). Most Canadians, even those who run businesses, will never have heard of LPP. But if you're a "collector" you're probably all too familiar with its taxing limitations.
LPP IS AN INCOME TAX ACT INVENTION
Like Capital Cost Allowance (CCA), LPP is a term unique to the Income Tax Act, rather than one in common accounting use. LPP includes personal chattels (meaning not real estate) that usually appreciate in value over time. Most chattels depreciate, and thus you can claim CCA on them. You can't claim CCA on LPP.
- prints, etchings, drawings, paintings, sculptures and other similar works of art;
- rare folios, manuscripts and books;
LPP GIVES YOU A BREAK ON CAPITAL GAINS
Profits on the sale of LPP are reportable capital gains. However, the base value of LPP for capital gains purposes is $1000. So if you buy stamps for $700, and sell them for $1200, you only have a $200 capital gain to report (the increase from the $1000 deemed based value).
LPP losses can only be used to offset other LPP gains, not other income.
LPP LIMITS THE DEDUCTIBILITY OF HIGH VALUE ART
What this all means is that you can't invest crazy sums in art, hoping that it will create all sorts of losses for you when you go to sell it that you can deduct against other income. Likewise, you can't spread high end art all over your office, hoping to depreciate its value as regular CCA. Though less expensive pieces should be deductible as regular office expenses.
Gordon S. Campbell is a tax lawyer practicing throughout Canada who has argued tax cases as high as the Supreme Court of Canada. Learn more at acmlawfirm.ca/taxlaw.