Should I record a capital loss when I sell my car?
A car is a fixed asset and if you sell it at a profit, would the gain will be subject to Capital Gains Tax? And if you sold it at a loss, would you record that as a capital loss and be able to offset it against capital gains?
Eighth Schedule of the Income Tax Act
Para 53(1) excludes personal-use assets from capital gains or losses and Para 53(2) defines a personal-use asset as an asset of a natural person or special trust that is used mainly for purposes other than carrying on of a trade.
So, what if you used the car for the benefit of your employer and earned a travelling allowance for doing so? Quite simply you are using the car as an employee and not in trade.
What if you are a sole trader and used the car for partly the business. Here we have to look at the word “mainly”. It has been defined in numerous court cases to mean more than 50%, so that is your guideline. If more than 50% of the kilometers travelled were for business then the capital gain or loss on the sale of the car would not be excluded.
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If you are using a car mainly for business would you not be claiming depreciation on the car as an expense.
Does the depreciation not reduce the base cost of the vehicle or substitute for being able to claim a capital loss?
If you are a sole trader, you would claim wear and tear allowance (the tax equivalent of depreciation) against the business’s taxable income. If you sold the car, then there may be a recoupment of the W&T allowance.
If you are an employee, you would claim travelling expenses (per the published tables) against your travel allowance regardless of whether or not the vehicle is used mainly for business.
These are not capital transactions in nature and do not affect the Base Cost.