Private ruling: Capital gains tax – Collectables
Date of advice: 1 November 2017
Published: March 2018
Ruling period: Year ended 30 June 2016. | Year ended 30 June 2015.
Date scheme commenced: 1 July 2014.

Ruling: Q1: Does the Commissioner have any powers to disregard and carry forward a capital gain made in a financial year so you can offset that capital gain against a capital loss made in a later financial year? | A1: No.

Relevant facts and circumstances: The Deceased passed away (the Deceased). You were named as executor of the Deceased’s estate. During the financial year you sold a variety of collectables incurring a capital gain. You were required to lodge an income tax return for the Deceased’s estate for the financial year which resulted in you having an income tax liability, which the Deceased’s estate paid. During a later financial year you sold the remaining collectables in the Deceased’s estate and made a capital loss.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 95 | Income Tax Assessment Act 1997 section 3-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 10-5 | Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 108-10 | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Detailed Reasoning - Detailed reasoning: Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines a financial year as meaning a period of 12 months beginning on 1 July. Section 3-5 of the ITAA 1997 states that income tax is payable for each year by each individual and company, and by some other entities. Subsection 6-10(2) of the ITAA 1997 states that if you receive amounts that are not ordinary income they may be included in your assessable income as statutory income. A list is provided under section 10-5 of the ITAA 1997 which includes capital gains as a source of statutory income. Section 102-5 of the ITAA 1997 states that your assessable income includes your net capital gain (if any) for the income year. Section 104-10 of the ITAA 1997 states that CGT event A1 happens if you dispose of a CGT asset, the timing of this event is when you enter into the contract for the disposal or if there is no contract, when the change of ownership occurs. Section 108-10 of the ITAA 1997 provides that in working out your net capital gain for an income year, capital losses from collectables can be used only to reduce capital gains from collectables. Collectables include artwork, jewellery, an antique, or a coin or medallion, a rare folio, a manuscript or book or a postage stamp or first day cover that is used or kept mainly for your personal use or enjoyment. If some or all of a capital loss from a collectable cannot be applied in an income year, the unapplied amount can be applied in the next income year for which your capital gains from collectables exceed your capital losses (if any) from collectables. Section 95 of the ITAA 1936 operates so that only the income and not the loss of a trust estate can be distributed to a beneficiary out of a trust estate. In this case you were appointed the executor of the Deceased’s estate. As executor you had the responsibility of disposing of the Deceased’s assets some of which consisted of collectables such as Artworks. In the financial year you sold various collectables which resulted in the estate making a capital gain, with the estate being issued an income tax liability, which the Deceased’s estate paid. In a later financial year you sold the remaining collectables in the Deceased’s estate making a capital loss. As all the remaining collectables have been disposed of the loss will be unused. As indicated above the financial year in which income tax is calculated begins on 1 July and runs for a 12 month period. As the Deceased estate made a capital gain in one financial year and a capital loss in a later financial year the capital loss will remain unused in the deceased estate. The loss cannot be distributed to a beneficiary out of a deceased estate, it must be carried forward. There are no provisions to enable the Commissioner to exercise any discretion in relation to the timing of capital gains tax events. Therefore the capital gain made in the financial year cannot be disregarded and carried forward into a financial year where a capital loss was made. The capital gain must be disclosed in the year the CGT event took place. Consequently the capital gain made in the financial year from the sale of collectables cannot be disregarded and carried forward to enable you to offset the capital loss made from the sale of collectables in a later financial year.