Edited version of private advice

Authorisation Number: 1052370119601

Date of advice: 06 March 2025

Ruling

Subject: CGT - personal use assets

Question 1

Are the bottles of wine personal use assets as defined in subsection 108-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes, the bottles of wine were kept for the purpose of your personal use or enjoyment and therefore satisfy the definition of personal use asset in section 108-20 of the ITAA 1997.

Question 2

Will bottles of wine be treated as a set of personal use assets for the purposes of section 108-25 of the ITAA 1997 where they have been individually purchased over a number of years?

Answer 2

No, the Commissioner will not treat the wine collection as a single personal use asset under section 108-25 of the ITAA 1997 as the wine collection is not a set, it is not 'ordinarily disposed of as a set', and you did not dispose of the bottles and cases in one or more transactions for the purpose of obtaining the exemption in section 118-10 of the ITAA 1997.

Question 3

Can the capital gain be disregarded under subsection 118-10(3) of the ITAA 1997 on the disposal of the wines as the first element of the cost base for each bottle or case is less than $XX?

Answer 3

Yes, as the wine collection will not be treated as a set, any capital gain made on the disposal of the wine will be disregarded as none of the individual bottles or cases were acquired for more than $XX each.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The Taxpayers jointly owned a collection of wine.

The wine has been collected over many years from a number of sources spanning approximately X years.

No single bottle of wine has been acquired that had a purchase price in excess of $XX.

The bottles were acquired individually, excluding a handful which were purchased as a case. No case had a purchase price that exceeded $XX.

None of the wine collection has been sold or consumed since acquisition.

The wine was held in a professional storage facility in Country A and the Taxpayers intended to consume the wine in retirement when they eventually moved to Country A.

Family health issues prevented the Taxpayers move to Country A, and they decided to stay in Australia.

The cost to transport the wine collection to Australia was too high and the decision was made to dispose of the wine collection by auction.

The collection was sold in bulk to reduce holding/storage costs, as the time it would take to sell the bottles individually was uneconomical.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 108-20

Income Tax Assessment Act 1997 subsection 108-20(2)

Income Tax Assessment Act 1997 section 108-25

Income Tax Assessment Act 1997 subsection 110-25(2)

Income Tax Assessment Act 1997 subsection 110-55(2)

Income Tax Assessment Act 1997 section 118-10

Income Tax Assessment Act 1997 subsection 118-10(3)

Reasons for decision

Question 1

A capital gain or loss made from a personal use asset can be disregarded under section 108-20 of the ITAA 1997. Subsection 108-20(2) of the ITAA 1997 defines a personal use asset as follows:

Section 108-20 losses from personal use assets must be disregarded

...

(2) a personal use asset is:

(a) a CGT asset (except a collectible) that is used or kept mainly for your personal use or enjoyment; or

(b) an option or right to acquire a CGT asset of that kind; or

(c) a debt arising from a CGT event in which the CGT asset the subject of the event was one covered by paragraph (a); or

(d) a debt arising other than:

(i) in the course of gaining or producing your assessable income; or

(ii) from your carrying on a business

The definition in section 108-20 of the ITAA 1997 refers to an asset that is 'used or kept' mainly for personal use, therefore the purpose for which an asset is kept is also taken into consideration.

The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW defines 'mainly' as 'chiefly; principally; for the most part'.

In the case of Favaro v FC of T (1996) 34 ATR 1, Branson J stated the following in relation to foreign currency that was converted into Australian currency:

'that the expression "personal use" is used in s 160B of the ITAA 1936 in contradistinction to use for business or profit making purposes'.

ATO ID 2002/795 discusses whether unused kitchen tiles were considered a personal use asset and includes reference to the meaning of key phrases in section 108-20 as outlined above.

Wine is not included in the definition of collectable in subsection 108-10(2) of the ITAA 1997.

Application to your circumstances

You acquired your wine collection over a time period spanning approximately X years. You acquired some bottles in cases, and some bottles individually. You always intended to retire to the Country A and consume the collection.

Even though you had not yet consumed any of the wine collection, you kept it for your personal use and enjoyment, with the intention of consuming it for the same purpose.

The wine collection is considered a personal use asset as per subsection 108-20(2) of the ITAA 1997.

Question 2

Section 108-25 of the ITAA 1997 sets out how the Commissioner will treat personal use assets if they are considered a 'set' of assets and states the following:

Section 108-25 sets of personal use assets

(1) This section sets out what happens if:

(a) you own personal use assets that are a set; and

(b) they would ordinarily be disposed of as a set; and

(c) you dispose of them in one or more transactions for the purpose of trying to obtain the exemption in section 118 - 10.

(2) The set of personal use assets is taken to be a single personal use asset and each of your disposals is a disposal of part of that asset.

If a person who owns personal assets that are a set, which would ordinarily be disposed of as a set, disposes of them in one or more transactions for the purpose of trying to obtain the exemption in section 118-10 of the ITAA 1997, then the set of assets is taken to be a single personal use asset and each disposal is taken to be a disposal of part of that single asset.

Application to your circumstances

A wine collection is not generally a set and in your circumstances each bottle or case is not considered to form part of a set of wine. Your wine collection was sold in bulk at auction in order to reduce the cost of holding and storing the wine, the time it would have taken to sell the bottles and cases individually would have not been economical in your circumstances.

You did not dispose of the bottles and cases in one or more transactions for the purpose of obtaining the exemption in section 118-10 of the ITAA 1997.

The Commissioner will not treat the wine collection as a single personal use asset under section 108-25 of the ITAA 1997.

Question 3

Subsection 118-10 (3) of the ITAA 1997 states that a capital gain you make from a personal use asset, or part of the asset, is disregarded if the first element of the assets cost base is $XX or less.

Under the general cost base and reduced cost base rules covered by subsections 110-25(2) of the ITAA 1997 and 110-55(2) of the ITAA 1997, the first element of the cost base and reduced cost base of an asset is the sum of the amount paid (or required to be paid) and the market value of the property given (or required to be given) in respect of acquiring it.

Generally, this means that if you acquire an asset for $XX or less, or the asset's market value was $XX or less at the time of acquisition, the capital gain on disposal of that asset is disregarded.

Application to your circumstances

In your case, the wine was purchased either as individual bottles or cases. No single bottle of wine or case had a purchase price in excess of $XX.

As discussed above, the wine collection will not be treated as a set, and therefore any capital gain made on the disposal of the wines when they were sold can be disregarded as the cost base for each of the bottles and cases is less than $XX.

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