Private ruling: Sale of a collection
Published: July 2012
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you carrying on a business in relation to your collection? | A1: No. | Q2: Are the amounts received from the sale of your collection regarded as ordinary assessable income? | A2: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 108-10 | Income Tax Assessment Act 1997 section 118-10

Reasons for decision: Summary: Under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997), the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year. Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business. To determine whether your activities are assessable, we need to consider if you are carrying on a business. Business is defined in section 995-1 of the ITAA 1997 to be 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'. The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators that are applied to determine the matter on the particular facts. Taxation Ruling TR 97/11 outlines some factors that indicate whether or not a business of primary production is being carried on. These factors equally apply to other types of businesses. No individual factor is determinative, but should be weighed up in conjunction with the other factors. 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. TR 97/11 states the indicators must be considered in combination and as a whole and whether a business is being carried on depends on the 'large or general impression gained' ( Martin v. FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551) from looking at all the indicators, and whether these factors provide the operations with a 'commercial flavour' ( Ferguson v. FC of T (1979) 37 FLR 310 at 325; 79 ATC 4261 at 4271; (1979) 9 ATR 873 at 884). However, the weighting to be given to each indicator may vary from case to case, and no one indicator will be decisive ( Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922). | Detailed Reasoning - Applying the relevant indicators to your circumstances: Your activities do not have a significant commercial purpose. Although you have spent considerable time over the years with your collection, you did not carry on your collection activities with an intention to make a profit. Although you have some receipts and records, the records are not regarded as true business records. Your activities are not considered to be carried on in a business like manner. The size and scale of your activity is not large enough to be a commercially viable business. Your activities are more in the nature of a recreational pursuit or hobby. After weighing up the relative business indicators and objective facts surrounding your case it is considered that you are not carrying on a business for taxation purposes. The money received from selling your collection is not regarded as ordinary assessable income. | Detailed Reasoning - Other information: Where a person carries out a hobby and the amounts received are not regarded as assessable income, no deductions are allowed in relation to the hobby. However, when certain assets are sold, the capital gains tax (CGT) provisions may apply. However, not all assets are subject to CGT. For example, there is a general exemption which applies to assets that you acquired before 20 September 1985. In addition, certain types of assets are only subject to CGT if certain conditions are satisfied. Collectables are such an asset. Subsection 108-10(2) of the ITAA 1997 provides that a collectable is, among other things, a coin or medallion, a postage stamp or first day cover that is used or kept mainly for your personal use or enjoyment. However, you disregard any capital gain or capital loss you make from a collectable if any of the following apply: · you acquired the asset before 20 September 1985 · you acquired the collectable for $500 or less (section 118-10 of the ITAA 1997) · you acquired an interest in the collectable for $500 or less before 16 December 1995 · you acquired an interest in the collectable when it had a market value of $500 or less. Where a capital loss is made from collectables, the loss can be used only to reduce capital gains from collectables (subsection 108-10(1) of the ITAA 1997). Further information about CGT in relation to collectables can be found in the Tax Office publication Guide to capital gains tax which is available on our website www.ato.gov.au.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | The collection commenced before 1980. | The majority of the items were gifted to you by your relation. | You have no receipts in relation to the purchase price of the various items. | You have sold some items over the past few years at a loss. | Your relation purchased some items in approximately 1940. | The collection is substantial in number and is kept in a bank vault and a secure safe. | You have not recently purchased any items for your collection. | It was your original intention to pass the collection on to your children; however, they have not shown any interest. | You are an experienced collector and have knowledge of the relevant markets. As your children and spouse are not experienced and not interested in the collection, you wish to sell the collection. You have sold some items on Ebay and propose to sell many other items in the future. The collection is taking some time to sell.