Edited version of private advice

Authorisation Number: 1052146695809

Date of advice: 25 July 2023

Ruling

Subject: CGT - antique car

Question 1

Is the capital gain from the sale of an antique car able to be disregarded by the Entity?

Answer

Yes

Question 2

Does the capital gain in Question 1 have any effect when calculating the tax losses of earlier financial years?

Answer

No

This ruling applies for the following periods:

DD MM YYYY to DD MM YYYY

RELEVANT FACTS AND CIRCUMSTANCES

Background information

1.      The Entity is a trust and was settled on DD MM YYYY.

2.      The Appointer of the Entity is Taxpayer A

3.      The Trustee of the Entity is Company A

4.      The directors of the Entity are Taxpayer A and Taxpayer B.

5.      The shareholders of the Entity are Taxpayer A (x Ordinary fully paid shares) and Taxpayer C and Taxpayer D (x Ordinary fully paid shares) - Joint Executors of Estate of the Late Taxpayer B (in the course of administration).

6.      The entity has no outstanding income tax returns.

Taxpayer B (previous director)

7.      Taxpayer B, a previous director of the Entity, was born on DD MM YYYY and died on DD MM YYYY.

8.      Taxpayer B was an avid enthusiast for early-type motor vehicles. When the Entity commenced in YYYY, he acquired antique, veteran and vintage cars ('the Cars').

9.      The Cars were acquired for collection and not for the purpose of deriving a profit from the sale, even if there was a possibility of a future sale or exchange when better or more significant models of early dated cars came on the market and were available for acquisition.

Purchase of the Car

10.    The Entity purchased the YYYY motor vehicle ('the Car') on DD MM YYYY for the amount of AUD xxx from Mr X.

11.    Pursuant to Clause xx of the Trust Deed, the Trustee has the power "to purchase any real or personal property wheresoever situate...".

Sale of the Car

12.    On DD MM YYYY, the directors of the Entity resolved to conclude an Agency Sales Agreement with Company X based in XXX to sell the Car.

13.    Pursuant to Clause xx of the Trust Deed, the Trustee "shall have power at its absolute discretion to sell real or personal property'...".

14.    On DD MM YYYY, the Car, which had been exported to XXX for the purposes of the Agency Sales Agreement, was sold to an unrelated third party purchaser for GBP xxx. The transaction was settled on DD MM YYYY.

15.    The sale proceeds of AUD yyy (net of sales commission) were remitted to Australia on DD MM YYYY.

16.    No capital allowances or other deductions were claimed during the period of ownership.

17.    At a future time, it is likely that other cars in the collection will be sold.

Information provided

18.    You have provided several documents containing detailed information in relation to the Entity, including:

•                     Private Binding Ruling ('PBR') Application, dated DD MM YYYY

•                     Information provided as appendices to the ruling application

19.    We have referred to the relevant information within these documents in applying the relevant tests to your circumstances.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 subsection 108-10(2)

Income Tax Assessment Act 1997 section 118-5

Income Tax Assessment Act 1997 subsection 995-1(1)

REASONS FOR DECISION

All legislative references are to the Income Tax Assessment Act 1997 ('ITAA 1997') unless otherwise stated.

SUMMARY - Question 1

The capital gain from the sale of an antique car may be disregarded by the Entity.

SUMMARY - Question 2

The capital gain in Question 1 has no effect when calculating the tax losses of earlier financial years.

DETAILED REASONING

20.    Subsection 118-5(a) of the ITAA 1997 provides an exemption for capital gains or capital losses that arise from cars, motorcycles and similar vehicles. Given that most vehicles decrease in value over time, effectively subsection 118-5(a) of the ITAA 1997 denies a capital loss on the sale or disposal of motor vehicles.

21.    Under section 108-5 of the ITAA 1997, a car is considered a CGT asset.

22.    Subsection 995-1(1) of the ITAA 1997 defines a "car" to be "a motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers".

23.    Section 995-1 of the ITAA 1997 defines a "motor vehicle" to be "any motor-powered road vehicle (including a 4-wheel drive vehicle)".

24.    As noted in Paragraph 3 of Taxation Determination TD 2000/35: "Income Tax: capital gains: Is a capital gain or capital loss made from an antique car, a veteran car or a vintage car disregarded?", a car may be a "collectable" in terms of subsection 108-10(2) of the ITAA 1997 if it is an antique. A car may be a personal use asset in terms of subsection 108-20(2) of the ITAA 1997 if it is used or kept mainly for one's personal use or enjoyment. In either case, it remains a car for the purposes of section 118-5 of the ITAA 1997 and any capital gain or capital loss made on it is disregarded under that section.

25.    As noted in Paragraph 1 of 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?", the word 'antique' describes an object of artistic and historical significance that, when a CGT event happens to it, is of an age exceeding 100 years.

APPLICATION TO YOUR CIRCUMSTANCES

Question 1

26.    The Car is a 4 seater motor vehicle that carries a load of less than 1 tonne and fewer than 9 passengers. The Car satisfies the definition of a car under subsection 995-1(1) of the ITAA 1997.

27.    The Car was acquired primarily for its uniqueness, for its quality of being remarkable and special and not for personal use and enjoyment.

28.    The Car was driven by the late Taxpayer B at various locationswhere significant vehicles are displayed and judged. Such events enhanced the significance of the Car.

29.    The Car was manufactured in YYYY and was disposed of on DD MM YYYY, resulting in a capital gain (CGT Event A1) as per section 104-5 of the ITAA 1997.

30.    At the time of the CGT Event A1, the Car was an antique, as it was more than 100 years old.

31.    In conclusion, the Car is a car, it is an antique and in accordance with section 118-5 of the ITAA 1997 and TD 2000/35, the capital gain made on disposal should be disregarded.

32.    As the Car was held long term for investment with no intention for profit making, CGT rules apply and there is an exemption for motor vehicles under section 118-5 of the ITAA 1997.

Question 2

33.    The capital gain in Question 1 has no effect when calculating the tax losses of earlier financial years as no amount is included in assessable income and it is not exempt income.

ATO view documents

Taxation Determination TD 2000/35: "Income Tax: capital gains: Is a capital gain or capital loss made from an antique car, a veteran car or a vintage car disregarded?"

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?"