Edited version of private advice

Authorisation Number: 1052116448689

Date of advice: 9 May 2023

Ruling

Subject: CGT asset - personal use

Question 1

Will the disposal of the personalised number plate be taxed on capital account and not on revenue account?

Answer

Yes.

Question 2

If yes, is the personalised number plate a personal use asset under subsection 108-20(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 3

If yes to question 1 and no to question 2 is the personalised number plate a collectable under subsection 108-10(2) of the ITAA 1997?

Answer

Not applicable.

This private ruling applies for the following periods:

1 July XXXX to 30 June XXXX

1 July XXXX to 30 June XXXX

The scheme commenced on:

1 July XXXX

Relevant facts and circumstances

1.    You co-own a personalised number plate (number plate) with your father.

2.    Your father bought the number plate in XXXX and gifted you a 50% interest in the number plate in XXXX.

3.    When the number plate was gifted to you in XXXX, the value of the number plate was $XXX. You advise that your 50% interest in the number plate in XXXX was properly valued at less than $XXX.

4.    You have only used and kept the number plate due to the sentimental value it holds. The number plate was not acquired with the intent to make a profit by re-sale at a future date.

5.    You do not carry on a business of buying and selling personalised number plates.

6.    The original intention when acquiring the number plate was for it to be used on your family's personal vehicles. The number plate was only ever displayed on personal cars used by you and your family.

7.    The cars which had the number plate on them were owned by your father.

8.    The number plate is not more than 100 years old and is not considered to be an antique or have a value based on age.

9.    You and your father intend to sell the number plate, likely at an auction.

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 109-5

Income Tax Assessment Act 1997 section 112-20

Income Tax Assessment Act 1997 section 118-10

Income Tax Assessment Act 1936 section 318

Reasons for Decision

Question 1

Will the proceeds from disposal of the number plate be received on capital account or on revenue account?

Summary

The proceeds of the prospective sale will be capital in nature. Any profits from the sale of the number plate will not be the result of you carrying on a business of selling number plates or from an isolated transaction with a view to profit.

Detailed reasoning

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 the result of an isolated transaction with a view to profit, it will have the character of revenue.

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

3.    To determine if you are carrying on a business, the relevant facts and circumstances of the activity must be considered in relation to a list of indicators developed through caselaw. Paragraph 13 of Taxation Ruling 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11) sets out these indicators, 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 indicators, 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.    Taxation Ruling TR 92/3 Income Tax: whether profits on isolated transactions are income (TR 92/3) outlines when the profits from an isolated transaction are income. Generally, the profit from an isolated transaction will be income where:

•         your intent or purpose in entering into the transaction was to make a profit or gain; and

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

6.    Where the activities do not amount to carrying on a business and the transaction is not entered into in carrying out a business operation or commercial transaction, then any gain will be dealt with under the capital gains tax (CGT) provisions (as capital).

Application and Conclusion:

7.    According to the facts outlined above, you would not be carrying on a business or undertaking an isolated transaction with a view to profit. You did not acquire the number plate with an intent to profit from its future sale. You did not have a business plan or conduct yourself in a way that is consistent with ordinary business practice. Therefore, the proceeds of the proposed sale of the number plate will be capital in nature and dealt with under the CGT provisions.

Question 2

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

Summary

The number plate will satisfy the definition of a personal use asset. The number plate was used or kept due to its significance to you and your family. You did not use or keep the number plate for any business purpose. You acquired your interest in the number plate for an amount less than the $XXX personal use asset threshold.

Detailed reasoning

8.    The CGT provisions are contained in Part 3-1 of the ITAA 1997. Broadly, the CGT provisions require you to include your net capital gain in your assessable income.

Personal use assets

9.    Under subsection 118-10(3) of the ITAA 1997, capital gains made from the disposal of personal use assets are disregarded if the asset was acquired for less than $10,000.

10.  A personal use asset is defined in subsection 108-20(2) of the ITAA 1997 to be a CGT asset that is used or kept mainly for your personal use or enjoyment, or for the personal use or enjoyment of your associates. The definition of associate is provided in subsection 318(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition of associate includes your relatives.

11.  In Favaro v FC of T (1996) 34 ATR 1 96, the court highlighted that there is a difference between an asset used for personal use, compared to business use. The court there accepted that the expression "personal use" is used in "contradistinction to use for business or profit making purposes".

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

13.  Subsection 108-10(2) of the ITAA 1997 provides that a collectible is:

•         artwork

•         jewellery

•         an antique

•         a coin or medallion

•         a rare folio, manuscript or book, or

•         a postage stamp, or first day cover.

14.  The collectible must be used or kept mainly for your personal use or enjoyment or for the personal use or enjoyment of an associate of yours.

15.  Taxation Determination TD 1999/40 Income tax: capital gains: what is an 'antique' for the purposes of the definition of 'collectable' in subsection 108-10(2) of the Income Tax Assessment Act 1997? (TD 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.

Acquisition of a CGT asset

16.  Section 109-5 of the ITAA 1997 states that you acquire a CGT asset when you become its owner.

17.  Subsection 112-20(1) relevantly states that the market value substitution rule applies if you acquire a CGT asset from another entity and you did not incur expenditure to acquire it.

18.  The market value substitution rule substitutes the first element of the CGT asset's cost base with the market value of the CGT asset at the time it was acquired.

Application and Conclusion:

19.  Your father gifted you a 50% interest in the number plate in XXXX. Since you received the number plate as a gift, the market value substitution rule will apply to determine the value of the CGT asset that you acquired.

20.  The number plate was worth less than $XXX when your father gifted you a 50% interest in the number plate. The value of your interest in the number plate was less than $XXX.

21.  The number plate has only been displayed on personal vehicles used by you and your family. There has been no business use of the number plate.

22.  On the facts in this case, the number plate would not be considered a collectible and would be considered to be a personal use asset for the purposes of the CGT provisions.

23.  The number plate was acquired for less than $XXX and is predominately used because of the personal significance it holds for you and your family. Therefore, any capital gain/loss from the disposal of the number plate would be disregarded under subsection 118-10(3) of the ITAA 1997, because the number plate is a personal use asset.