Edited version of your written advice

Authorisation Number: 1012696818563

Ruling

Subject: Mere realisation of personal property

Question 1

Is the sale of artwork acquired for personal use and enjoyment considered to be carrying on a business under the Income Tax Assessment Act 1997 (ITAA 1997) section 995-1, for income tax purposes?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

You acquired various pieces of artwork at a cost in excess of $500 over a number of years for the purpose of your own personal use and enjoyment.

At this time, you did not have any intention to sell the artwork for a profit.

You do not have any special expertise on the artwork, or receive any expert advice when you purchased the pieces. They were purchased because you liked the pieces.

The artwork was only displayed at your private residence and you have not previously sold any of it.

You intend to dispose of some of your artwork as a mere realisation of the artworks' current value and your intention was not to make a profit.

You have decided to dispose of some of your artwork to assist in reducing your collection as you are looking to downsize your home.

You have estimated there are approximately XXX pieces which you are looking to sell.

The artwork will be disposed of firstly to your friends and family. If this is not possible, you will go through artwork auction clearing houses so the artwork can be sold as quickly as possible.

You believe that you will make both gains and losses on the sale of various pieces of your collection.

The disposal of the artwork is not being handled in a manner that would be seen as trying to make a profit through the sale of the artwork. The artwork is not being displayed in any art galleries in order to sell it.

Relevant legislative provisions

Income Tax Assessment Act 1997 (ITAA 1997) section 995-1

Reasons for decision

Section 995-1 of the Income Tax Assessment Act 1997 (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 facts.

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

These factors as they relate to your case are considered below:

The artwork that you collected over a number of years were purchased for your own personal enjoyment, displayed in your private residence, and was not acquired with the intention of selling the pieces for a profit.

You have decided to dispose of some of these pieces, from your personal collection, primarily through your peers and where this is not possible through at art auction clearing houses. The reason behind this is because you wish to downsize your collection. The sale process you have chosen is to assist in the quick sale of the artwork, which will make either a gain or a loss, depending on the piece.

You are not selling the artwork to make a profit, nor are you selling it in a manner that would be seen to have commercial implications. Generally, if a profit making intention exists, you would be looking to actively involve the wider general public at large rather than relying largely on the interest of your peers.

Although it can be expected that proceeds from the sale of the pieces of artwork are likely to be considerable, it should not be an automatic indicator that there was a profit making intention behind the acquisition and sale of the artwork, or that there is a carrying on of a business. It is not unreasonable for a person to sell their collectables at market value, rather than giving them away, if they were to dispose or downsize their collection.

Although the size of the collection that is to be disposed of is considerable, once they have been disposed of there will not be any recurring or repetitive activity. The sale is purely for the downsizing of a personal collection, albeit considerably large.

Having considered the relevant facts, we have determined you are not carrying on a business of buying and selling pieces of artwork. You are simply selling the artwork you purchased for your own personal use and enjoyment.

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