Capital Asset Definition:

In the United States, the Internal Revenue Service, as of 2010, wrote:

"Almost everything owned and used for personal or investment purposes is a capital asset. Examples are a home, household furnishings, and stocks or bonds held in a personal account. When a capital asset is sold, the difference between the basis in the asset and the amount it is sold for is a capital gain or a capital loss. You have a capital gain if you sell the asset for more than your basis. You have a capital loss if you sell the asset for less than your basis. Losses from the sale of personal-use property, such as your home or car, are not deductible.

"Capital gains and losses are classified as long-term or short-term. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.

"Capital gains and deductible capital losses are reported..."

In Canada, Justice Jackett of the Exchequer Court of Canada wrote, in Canada Steamship Lines:

"Things used in a business to earn the income — land, buildings, plant, machinery, motor vehicles, ships — are capital assets.

"Money laid out to acquire such assets constitutes an outlay of capital. By the same token, money laid out to upgrade such an asset — to make it something different in kind from what it was — is an outlay of capital.

"On the other hand, an expenditure for the purpose of repairing the physical effects of use of such an asset in the business — whether resulting from wear and tear or accident — is not an outlay of capital. It is a current expense."

REFERENCES:

• Canada Steamship Lines v MNR, [1966] C.T.C. 255 and at 66 D.T.C. 5205
• Duhaime, Lloyd, Legal Definition of Capital Expenditure
• Duhaime, Lloyd, Legal Definition of Capital Gain
• Duhaime, Lloyd, Legal Definition of Capital Loss
• I.R.S., Topic 409 - Capital Gains and Losses (2010)