Edited version of your written advice

Authorisation Number: 1012869697041

Date of advice: 31 August 2015

Ruling

Subject: CGT - Collecting - Am I in business

Question 1

Am I in the business of trading collectables for taxation purposes?

Answer 1

No.

Question 2

Will the proceeds received from selling my collectables be exempt from capital gains tax (CGT)?

Answer 2

Yes.

This ruling applies for the following periods:

30 June 2016

The scheme commences on:

01 July 2015

Relevant facts and circumstances

You have been collecting for more than 20 years.

While you never intended to make a profit from your collecting, you may sell a portion of your collection in the future.

Your collectables cost between $1 and $100 each and you have no sets of that cost more than $500.

You have around 100 collectables.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5,

Income Tax Assessment Act 1997 Section 995-1,

Income Tax Assessment Act 1997 Section 118-10 and

Income Tax Assessment Act 1997 Section 118-15.

Reasons for decision

Question 1

Ordinary income

Income is generally assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (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.

Ordinary income has generally been held to include three categories: income from rendering personal services; income from property; and income from carrying on a business.

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 case of Evans v. Federal Commissioner of Taxation 89 ACT 4540; (1989) 20 ATR 922 stated that whether or not an activity amounts to carrying on business for taxation purposes is a question of fact. There is no exhaustive or determinative definition which can be applied to determine this matter. Martin v. Federal Commissioner of Taxation (1953) 90 CLR 470; (1953) 10 ATD 226; (1953) 5 AITR 548, however, provides that the test for determining whether or not a business is being carried on is both subjective, which considers the individuals purpose at the relevant time, and objective, which considers the nature and extent of the activities undertaken.

Taxation Ruling TR 97/11 provides the Commissioner's view of the factors that are considered important in determining if you are in business for tax purposes. The 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 gained.

Application to your circumstances

Based on the information you have provided we do not consider that the activity has the necessary characteristics of a business for taxation purposes. Therefore, any income you receive in relation to this activity will not be assessable under section 6-5 of the ITAA 1997 as ordinary income. In addition, any expenses that you incur in relation to this activity will not be deductible.

Future years

Although your activity has been described as a hobby, you can change from conducting a hobby to that of being in business (and vice-versa) over time as your level of activity changes. Therefore you should evaluate your level of activity on a regular basis to see whether you are conducting a hobby or carrying on a business. You can request a further ruling after the 2016 financial year if you are still unsure about this issue.

Question 2

Section 118-10 of the ITAA 1997 covers capital gains and interests in collectables. Subsection 118-10(1) explains that a capital gain or loss you make from a collectable is disregarded if the market value of the asset is $500 or less at the time you acquired it.

Section 118-10(2) lists accepted collectables:

(a) artwork, jewellery, an antique, or a coin or medallion; or

(b) a rare folio, manuscript or book; or

(c) a postage stamp or first day cover;

The condition is that the collectable is used or kept mainly for your (or your associate's) personal use or enjoyment.

Section 118-15 of the ITAA 1997 goes further to explain that collections acquired in sets for $500 or less are also exempt from capital gains tax.

Application to your circumstances

As the items in your collection were purchased for less than $500, the proceeds you receive from the sale of your collectables will be exempt from CGT.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).