Private ruling: Assessable income
Published: June 2012
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2011

Ruling: Q1: Are the proceeds from the sale of your items assessable as ordinary income? | A1: No. | Q2: Are there any Capital Gains Tax (CGT) implications of selling your items? | A2: No.

Relevant facts and circumstances: You have been a keen collector of certain types of items over the past 25 years. You wish to sell the items. The items you have acquired have cost less than $X each.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Section 108-10 | Income Tax Assessment Act 1997 Section 108-20 | Income Tax Assessment Act 1997 Section 118-10 | Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Summary: The proceeds from selling your items are not assessable as ordinary income as you will not be considered to be carrying on a business. Also, they are exempt from capital gains tax as the items are low cost personal use assets. | Detailed Reasoning - Assessable income: A taxpayer is liable to tax on their taxable income derived during the income year. Taxable income is calculated by subtracting allowable deductions from the taxpayer's assessable income. | Detailed Reasoning - Ordinary income: 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. Amounts received from carrying on a business are considered to be ordinary income. | Detailed Reasoning - Statutory income: Under section 6-10 of the ITAA 1997 assessable income also includes statutory income. Statutory income is income that is not ordinary income but is included as assessable income by specific provisions of the tax law (for example, capital gains). | Detailed Reasoning - 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 individual's 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 used to determine if you are in business for tax purposes. In the Commissioner's view, the factors that are considered important in determining the question of business activity 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. | Detailed Reasoning - Collectables: A collectable is a CGT asset. A collectable is defined in subsection 108-10(2) of the ITAA 1997 as being: (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 mainly used or kept for your own personal use or enjoyment. A capital gain or loss from a collectable is exempt if the asset was acquired for $500 or less. You are taken to have acquired a collectable for its market value at that time. | Detailed Reasoning - Personal use assets: A personal use asset is a CGT asset, other than a collectable, that is kept or used mainly for your personal use and enjoyment. A capital gain from a personal use asset is exempt from CGT if the asset was acquired for $10,000 or less (subsection 118-10(3) of the ITAA 1997). You cannot make a capital loss from a personal use asset (subsection 108-20(1) of the ITAA 1997). If personal use assets make up a set that would ordinarily be disposed of as a set, then the set makes up a single personal use asset. The exemption of $10,000 will apply to the set. | Detailed Reasoning - Application to your circumstances: In your case you collected certain types of items over the past 25 years. You are now selling your collection. 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 amounts you receive in relation to this activity will not be assessable under section 6-5 of the ITAA 1997. Your items do not meet the definition of a collectable for the purposes of section 108-10 of the ITAA 1997. However, they satisfy the criteria of a personal use asset. As the items acquired cost you less than $10,000 each, the capital gain on the sale of the items are exempt under subsection 118-10(3) of the ITAA 1997. Therefore, the money received is not ordinary income and not included as a capital gain.

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