Edited version of private advice

Authorisation Number: 1052070378288

Date of advice: 17 January 2023

Ruling

Subject: CGT - capital vs revenue classification

Question 1

Will the disposal of personalised number plates be taxed on capital account or on revenue account?

Answer

Capital Account. As a result, the proceeds of sale will be considered under the CGT provisions.

Question 2

If the answer to question 1 is on capital account, are the personalised number plates classified as personal use assets under subsection 108-20(2) of the ITAA 1997?

Answer

Yes.

Question 3

If the answer to question 1 is capital, and the answer to question 2 is no, are the personalised number plates collectables under subsection 108-10(2) of the ITAA 1997?

Answer

Not Applicable.

This ruling applies for the following periods:

1 July 20XX - 30 June 20XX

1 July 20XX - 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

1.     Mr X acquired two heritage personalised number plates in 19XX. One plate is owned outright, and the other is co-owned with his adult son (50% interest). The number plates are not a set.

2.     Mr X intends to sell the number plates, likely at auction.

3.     The number plates were each purchased for more than $500 but less than $10,000.

4.     Mr X did not purchase the number plates with the intention to make a profit by re-sale. He maintained that the number plates would always be for personal use.

5.     Mr X has not sold number plates before and does not normally engage in buying and selling assets of this nature

6.     The number plates were purchased for personal use and have always been attached to Mr X's personal cars.

7.     None of the cars that carried the number plates were collectables.

8.     The number plates are not more than 100 years old and are not considered to be antiques or have a value based on age.

9.     Mr X does not normally engage in buying and selling collectables. Mr X recently registered a business for GST with the intention of buying and selling watches. Mr X only completed one transaction (relating to watches). He currently has no intention of continuing this business.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 108-20

Income Tax Assessment Act 1997 section 118-10

Income Tax Assessment Act 1936 section 318

Reasons for decision

1.     Whether profit is considered capital or revenue depends on how the profit was made. If the profit was made in carrying on a business, or as a result of an isolated transaction with a view to profit, it will be considered revenue, otherwise the profit will be a capital gain.

2.     Whether you are carrying on a business depends on the specific facts of each case.

3.     To determine if a person carries on a business, the relevant facts and circumstances of the business activity must be considered in relation to a list of factors developed through caselaw. Paragraph 13 of TR 97/11 sets out these factors, which include:

•         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 repetition and regularity of the activity;

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

•         whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at 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 a sporting activity.

4.     Paragraphs 12-16 of TR 97/11 provide that when determining whether a business activity satisfies these factors, certain considerations are essential to their application, particularly that:

•         The indicators must be weighed, but all cases turn on their own facts;

•         No single indicator is decisive;

•         The weight given to each indicator may vary from case to case; and

•         The indicators must be considered in combination and as a whole, and the decision depends on the general impression.

5.     TR 92/3 outlines when an isolated transaction will be considered revenue. Generally, if a taxpayer carrying on a business makes a profit from a transaction or operation, that profit is income if the transaction or operation is not in the course of the taxpayer's business but:

•         the intention or purpose of the taxpayer in entering into the transaction or operation was to make a profit or gain; and

•         the transaction or operation was entered into, and the profit was made, in carrying out a business operation or commercial transaction.

6.     Where the activities do not amount to carrying on a or the result of a profit-making undertaking or plan gains from the sale will be dealt with under the CGT provisions (as capital).

Application and Conclusion

7.     On the facts in this case, Mr X would not be carrying on a business or be undertaking an isolated commercial transaction with a view to profit. The proceeds of the proposed sale of the number plates will be capital in nature and dealt with under the CGT provisions.

Question 2

If the answer to question 1 is on capital account, are the personalised number plates classified as personal use assets under subsection 108-20(2) of the ITAA 1997?

Summary

The number plates satisfy the definition of personal use assets.

Detailed reasoning

8.     The CGT provisions are contained in Part 3-1 of the ITAA 1997. Broadly, the CGT provisions include in your assessable income any assessable gain made when a CGT event happens to a CGT asset that you own (to the extent they are not reduced by capital losses). Under section 108-5(1), a CGT asset is any kind of property, or a legal or equitable right that is not property. Depending on the category of CGT asset, exemptions may apply to the disposal of certain property.

9.     Under section 118-10(3), capital gains made from the disposal of personal use assets are disregarded if the asset was acquired for under $10,000.

10.  Generally, as provided in section 108-20(2)(a), a personal use asset is a CGT asset that is kept mainly for the personal use or enjoyment of the taxpayer or a taxpayer's associate. Associates in this context, per section 318(1) of the ITAA 1936, includes relatives of the taxpayer.

11.  Personal use assets do not include collectibles, land, stratum units, or buildings.

12.  Section 108-10(2) provides that the definition of collectable includes artwork; jewellery; an antique; a coin; a medallion; a rare folio, manuscript, or book; a postage stamp; or a first day cover. The collectible must be used or kept mainly for the personal use or enjoyment of the taxpayer or the taxpayer's associate.

13.  Taxation Determination 1999/40 provides that the definition of antique for the purposes of CGT is an object of artistic and historical significance that is of an age exceeding 100 years.

Application and Conclusion

14.  The number plates were purchased due to the significance of the numbers to Mr X. This would suggest a personal purpose for the number plates.

15.  The number plates have been used only on personal vehicles used by Mr X and his family.

16.  The two plates were each acquired for more than $500 and less than $10,000. As the acquisition costs for the plates were less than $10,000, the number plates satisfy the cost requirements to obtain the exemption under section 118-10.

17.  The numberplates are less than 100 years old and would not be considered antiques and therefore are not collectibles for the purposes of s108-10(2).

18.  On the facts in this case, the numberplates would not be considered collectibles and would be considered to be personal use assets for the purposes of the CGT provisions.

Question 3

If the answer to question 1 is capital, and the answer to question 2 is no, are the personalised number plates collectables under subsection 108-10(2) of the ITAA 1997?

Summary

The numberplates would not be considered collectibles as they do not meet the definition of a collectible under s108-10(2). In particular, the number plates would not be considered an antique for the purposes of the CGT provisions.

Detailed reasoning

As per reasoning outlined in Question 2.

Application and Conclusion

19. The number plates would only be considered collectibles if they were antiques. On the facts in this case the number plates are not more than 100 years old and in this case are not considered to be objects of artistic and historical significance.

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