Edited version of private ruling

Authorisation Number: 1011697827625

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Ruling

Subject: assessability of gold found while fossicking.

Question

Are the proceeds from the sale of gold you found whilst fossicking considered assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No.

Are you required to pay capital gains tax on the disposal of gold under section 118-10 of the ITAA 1997?

No.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You are employed full-time, and you have fossicked for gold with your relative only several times in your life.

You use a metal detector and hand tools while fossicking.

During the last fossicking trip you found a vein of gold. After extracting the metal, you exchanged it at a mint for an amount.

You gave your relative close to half of the amount as his share of the finds, and you kept the remainder.

You do not kept records of gold finds.

You do not consider your fossicking activities as a business, but rather as a hobby.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5,

Income Tax Assessment Act 1997 Subsection 6-5(1),

Income Tax Assessment Act 1997 Section 6-10,

Income Tax Assessment Act 1997 Section 995-1,

Income Tax Assessment Act 1997 Section 102-5,

Income Tax Assessment Act 1997 Subsection 118-10(3),

Income Tax Assessment Act 1997 Subsection 108-20(2),

Income Tax Assessment Act 1997 Section 108-5, and

Income Tax Assessment Act 1997 Section 160B.

Question 1:

Assessability of income on sale of gold

Assessable income

A taxpayer is liable to tax on their taxable income derived during the income year. Taxable income is calculated by subtracting allowable deductions from the taxpayer's assessable income.

Ordinary income

Income is generally assessable as ordinary income under section 6-5 of the ITAA 1997. Under subsection 6-5(1) of the ITAA 1997, ordinary income means income 'according to ordinary concepts'. This phrase is not defined under the legislation, but a large body of case law has developed to identify the factors that indicate if an amount is income according to ordinary concepts.

Statutory income

Under section 6-10 of the ITAA 1997 assessable income also includes statutory income. Statutory income is income that is not ordinary income but is included as assessable income by specific provisions of the tax law.

Carrying on a business

Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'.

The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators that are applied to determine the matter on the particular facts.

Taxation Ruling TR 97/11 provides the Commissioners view of the factors used to determine if you are in business for tax purposes.

In the Commissioner's view, the factors that are considered important in determining the question of business activity are:

· whether the activity has a significant commercial purpose or character

· whether the taxpayer has more than just an intention to engage in business

· whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity

· whether there is regularity and repetition of the activity

· whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business

· whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit

· the size, scale and permanency of the activity, and

· whether the activity is better described as a hobby, a form of recreation or sporting activity.

No one indicator is decisive. The indicators must be considered in combination and as a whole. Whether a 'business' is carried on depends on the large or general impression gained.

Application to your circumstances

You have conducted your gold fossicking activities only a small number of times.

Your activities do not have a commercial feel. You commenced the activities with your relative due to your combined interest in fossicking.

Your circumstances are not indicative of an operating business structure.

Your activities are conducted on a small scale and you do not devote much time to them. You were only conducting the activity on days off from your full-time work.

Your application indicated that you do not view the activity as a business operation.

Taking all of these factors into consideration, we have determined that your activities are not carried on as a business for taxation purposes and we do not consider the receipts of the activities to be assessable. As such you are not required to include the receipts in your income tax return.

Question 2:

Detailed reasoning

Capital Gains on sale of gold

Section 102-5 of the ITAA 1997 states that your assessable income includes your net capital gain (if any). However, you disregard a capital gain that you make from a personal use asset if you paid, or are required to pay, $10,000 or less in respect of acquiring that asset (subsection 118-10(3) of the ITAA 1997).

A 'personal use asset' is defined in subsection 108-20(2) of the ITAA 1997 and includes a CGT asset, except a collectable, that is used or kept mainly for your (or your associate's) personal use or enjoyment. Gold is a form of property and accordingly are CGT assets (section 108-5 of the ITAA 1997).

In Favaro v FC of T (1996) 34 ATR 1; 96 ATC 4975 the Federal Court held that Italian currency which was converted to Australian currency was not a 'personal use asset' under the equivalent provision of the Income Tax Assessment Act 1936 (ITAA 1936). The Court accepted the Commissioner's submission that 'the expression "personal use" is used in section 160B of the ITAA 1936 in contradistinction to use for business or profit making purposes' (subsection 160B(1) of the ITAA 1936 was rewritten as subsection 108-20(2) of the ITAA 1997).

The word 'contradistinction' means distinction by contrast or opposition (The Australian Oxford Dictionary, 1999, Oxford University Press, Melbourne). Therefore, an asset that is not used for business or profit making purposes is, by default, used or kept mainly for personal use and enjoyment. The two categories are mutually exclusive.

In your case, the gold was found pursuing a hobby and not in the course of carrying on any business or profit making activity. As such, it is considered the gold is used or kept mainly for your personal use and enjoyment, and is therefore a personal use asset under paragraph 108-20(2)(a) of the ITAA 1997.

Consequently, the capital gains from the sale of gold are not to be included in your assessable income.

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