Edited version of your written advice

Authorisation Number: 1012874430483

Date of advice: 8 September 2015

Ruling

Subject: Am I in business - game/toy collector.

Question 1

Are you carrying on a business of game collecting?

Answer

No.

Question 2

Are you carrying on a business of toy collecting?

Answer

No.

Question 3

Are you liable for capital gains tax on the sale of your collectables?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

You have been collecting toys and games for several years.

You collect for fun and not profit.

You have no business plan.

You purchase these collectables at private parties, swap meets and garage sales.

You purchase them for below market value.

You do not keep records of the purchases.

You paid less than $100 per item.

You do not purchase any sets of collectables.

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 108-20 ,

Income Tax Assessment Act 1997 Section 118-10,

Income Tax Assessment Act 1997 Section 118-15 and

Income Tax Assessment Act 1997 Section 995-1.

Carrying on a business

Detailed reasoning

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.

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.

Capital Gains

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 (CGT).

Section 108-20 of the ITAA 1997discusses personal use assets. Section 118-10 states that there is an exemption for a personal use asset you acquire for $10,000 or less.

Section 108-20(2) lists what is considered to be a personal use asset -

(a) a CGT asset (except a collectable) that is used or kept mainly for your (or your associate's) 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.

Application to your circumstances

Based on the information that you provided, the sale of your collectables would be below the thresholds for CGT for both collectables and personal use assets.