Private ruling: Capital gains tax
Date of advice: 14 December 2020
Published: February 2021
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the art sculptures subject to Capital Gains Tax? | A1: Yes.

Relevant facts and circumstances: You were given some items in the early 1990s. The items had been owned by the family for several decades. These items were kept at the family home in Country Z. You became a resident of Australia a few years after receiving ownership of the items. The items remained in boxes at the family home in Country Z. The items were not used for any purpose, were not displayed and did not receive any form of restoration.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-10(1) | Income Tax Assessment Act 1997 subsection 104-10(4) | Income Tax Assessment Act 1997 section 108-10(2) | Income Tax Assessment Act 1997 subsection 116-20(1) | Income Tax Assessment Act 1997 subsection 118-10(1) | Income Tax Assessment Act 1997 section 855-45

Reasons for decision: Summary: Subsection 104-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain tax (CGT) even A1 happens when a taxpayer disposes of a CGT asset. A taxpayer disposes of a CGT asset if a change of ownership occurs from the taxpayer to another entity. A capital gain or loss may be made if the capital proceeds from the disposal of a CGT asset are more or less than the cost base of the asset. However, subsection 118-10(1) of the ITAA 1997 states that a capital gain or capital loss you make from a collectable is disregarded if the first element of its cost base, or the first element of its cost if it is a depreciating asset, is $500 or less. Subsection 108-10(2) of the ITAA 1997 defines a collectable as: (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; that is used or kept mainly for your (or your associate's) personal use or enjoyment. In your case however, the items are not regarded as collectables as they were not kept for your (or your associate's) personal use or enjoyment, therefore the general CGT rules will apply. A capital gain is made from CGT event A1 if the capital proceeds from the disposal are more than the asset's cost base (subsection 104-10(4) of the ITAA 1997). A capital loss is made if the capital proceeds are less than the asset's reduced cost base. According to subsection 116-20(1) of the ITAA 1997 the capital proceeds from a CGT event are the total of the money received, or are entitled to receive in respect of the event happening; and the market value of any other property received, or are entitled to receive, in respect of the CGT event happening (worked out as at the time of the event). In order to determine the cost base of the items, it is necessary to establish when you are taken to have acquired the items under Australian law. Section 855-45 of the ITAA 1997 provides that the first element of any CGT assets you owned would be the market value on the day you became an Australian resident. | Detailed Reasoning - Conclusion: You are taken to have acquired the items for their market value on the date you became an Australian resident for taxation purposes and the subsequent sale of those items is subject to CGT under the normal rules as the items do not meet the definition of personal use assets or collectables.