Im trying to understand how or if collectables are taxed. The ato website had very limited info so thought i'd ask here. Ive been collecting sports memorabilia since I was a kid and have amassed a large collection over the past 2-3 decades. This past year my hobby has seen a massive bubble form with values skyrocketing. I now find myself the owner of individual pieces that can command 4, 5 and (for 1 particular item) up to 6 figures. A lot of these pieces were purchased mid-late 90s for just a few bucks. How is a collectable taxed if originally purchased for under $500 but is now worth 5/6 figures? Additionally, being a hobby put together from purchases and trading with other collectors decades ago, there is literally no paper trail or documentation. How would the ato view this? What evidence would they need or ask for? I think it would be unreasonable to ask for documentation for a hobby.
This is a good example of collectables. However a person who owns collectables can also trade collectables and be subject to ordinary income provisions and even GST. but that tends to occur with those that then make their collection part of a business eg open a shop trading coins and stamps. The hobby nature may be a matter to consider as a event that is different to that of an enterprise but the isolated profit makuing rules can also apply. One of the most important aspecs is not to trade regularly but to accumulate. Many collectors do rejuggle their holdings at times and his may be a element of their hobby rather than a profit making intention. But still subject to CGT law Diligent records are important. Why ? Imagine you have a 1978 Star Wars rare item. You acquired int in 1978 and it was #1 in your collection. Its a pre-CGT asset. How do you prove it ? Many collectors collect away and later realise they lack records of what things cost. And when you read the amnded rules it will make even more sense why decent records assist to know date and cost of acquisition: You can only use capital losses from collectables to reduce capital gains (including future capital gains) from collectables. You disregard any capital gain or capital loss you make from a collectable if any of the following apply: you acquired the collectable for $500 or less 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. You may find much or all your collection is not subject to tax but may need to support that view. I saw Bill Collins "Golden Years of Hollywood" collection was up for sale this week and this very issue around tax sprang to my mind. I also noted that his wife was selling within 2 years of his date of death.
HI Paul. Great reply. I wouldn't consider myself subject to ordinary income provisions as I did not carry on a trading business. My collection focused on sports cards of Michael Jordan and any trading I did was to accumulate more and higher end Jordan cards. Sadly as a kid I did not keep records for any of my earlier collections. I understand the ATO requires proof for deductions so unfortunately I won't have a leg to stand on. For the later pieces, a lot of them were acquired through other collectors so there are no formal documents or records. However, I do have chat messages with these collectors that detail negotiations on value, price, date, etc. Would these be considered by the ATO as sufficient documentation to establish cost base? Also, I was a bit confused why the ATO listed these dot points. To me they appear to be the same. Could you elaborate what these 3 points are trying to individually catch as they seem the same. you acquired the collectable for $500 or less 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 As an example, I have a card in my collection that I purchased in 2018 for $500. I have the message history to prove it. Will the ATO accept this? Now that the card is valued several thousand will it be CGT exempt as per the first dot point as I acquired it for $500 or less? Or will it be taxable as the second dot point states interest must be acquired before 16 Dec 1995?
Have a look at the law itself: s108-10 ITAA97 and the next few sections INCOME TAX ASSESSMENT ACT 1997 - SECT 108.10 Losses from collectables to be offset only against gains from collectables
Given the initial matter was as a hobby and became a collection issue in time then intrinsic information will support a view that a item cost $500 or less. ATO wont expect (but would like) some records. You may need to read more carefully. There are differences in each dot point not immediately apparent. eg "an interest"....rather than acquisition of the item !...This likely follows a tax case where someone was impacted by a "interest" rather than a actual acquisition. Unsure. I wonder how that "interest" v "acquisition" could be proven. Its not like there is a register of interests or title over cards. Maybe a consortium of stamp buyers ? IDK If you acquired the collectible then the date issue is not a matter but if it is a pre-CGT acquiistion it could be !
Thanks Terry. That was a very insightful read. And yes Paul, I see the difference now between full acquisition and partial interest.
I was waiting to say.....I really think you have a personal use asset, not a collectable. ATO webite says : Collectables include the following items that you use or keep mainly for the personal use or enjoyment of yourself or your associates: paintings, sculptures, drawings, engravings or photographs, reproductions of these items or property of a similar description or use jewellery antiques coins or medallions rare folios, manuscripts or books postage stamps or first day covers.... s108-10(2) A collectable is: 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; Note it doesnt mention player trading cards. That "trading" card issue isnt apparent as being a photograph or reproduction of one "or similar use" and it may be wise to seek ATO opinion. (I suspect its not) If these articles are Personal Use Assets (PUAs) then very different rules apply. If a CGT event happened to a personal use asset, disregard any capital gain you make if you acquired the asset for $10,000 or less. If you disposed of personal use assets individually that would usually be sold as a set, you get the exemption only if you acquired the set for $10,000 or less. I would be seeking a ATO opinion on what type of asset you have. I have an extensive collection of specific music and related items. Despite some being pre-CGT all were acquired since 1988 bar a few items. Some exceptionally rare and sought after. Neither a PUA (?) or a collectable. But are potentially PUAs. The only items I have disposed was when I sold three records back to the band (their first record numbered one, two and three) and it was exempt. Bought by their retiring manager as a farewell gift for three of the members who had lost ownership through a deceased parent. I saw the sale listed in London and took a punt years ago and it came good. I was offerred somethings very valuable in exchange but I knocked back as if I bought it the $10K set rule would have been breached as my acquisitions would have exceeded the $10K cap. The ATO took the view this rule applies to the end of the tax year, not up to the date when actually acquired. So i sold for cash and it was a CGT exempt sale.
