Selling assets while on Service Canada Disability

Question

I'm receiving disability payments via Service Canada, topped up by private long term disability. I have an opportunity to sell a non-real estate, virtual asset worth about $9500, which is considerably more than Service Canada's annual "working" limit (though they mention nothing about asset sales. See here).

My private insurer also does not allow any "income or work for profit". I would not do any "work" in this case, aside from a few minutes to hand over the asset and deposit the cheque. (Side question: Could that be considered "work" by any reasonable interpretation? Are there any precedents for this sort of thing?) The asset is something I've owned for many years--long before I became disabled. However, it has appreciated in value significantly.

Are one-time asset sales normally classified as "income", or are those clauses simply put there to "reward" those who work (in a conventional sense) for profit while on disability?

I don't wish to do anything wrong, but I also don't want to sell my asset only to have to turn around and give most (or all!) of the money to the government (either CPP disability or income tax) and/or my private insurer.

Sorry for all the side questions. Here's the important one: What should I do to keep as much of the total proceeds as possible? If it helps I could invest the money (or at least most of it) in my RRSP. Not selling is an option if I would just have to give the money away.

Answer 1

If you sell an asset for more than you paid for it, the excess amount realized is called a capital gain and is generally considered a form of income for tax purposes.

Generally, one pays income tax on realized capital gains, unless the sale is exempt—such as the sale of one's principal residence. Capital gains tax can also be avoided or deferred by holding assets in a tax-advantaged investment account like a TFSA or RRSP.

When taxable, the effective income tax rate on capital gains income is half the normal rate due to the capital gains inclusion rate.

Capital gains income is generally not considered to be employment, "earned", or "working" income. However, individuals who, say, trade stocks frequently and earn a substantial portion of their income that way may have their gains considered employment income and subject to regular income tax instead of the better rate.

I suggest you contact Service Canada and ask them about the impact of a one-time sale of personal property that would result in a realized capital gain. While you would owe income tax on the capital gain, it might not have any impact on your disability benefits, because it would not be earned or employment income.

You should also check with your private insurer; they may also consider the sale a capital gain and not employment income, however, only they would be able to tell you for sure whether it would have any possible effect on your benefits.