Paul Clitheroe: Collectibles, scams & the ATO on capital gains

ATO cautions investors

It’s that time of year when the Australian Taxation Office (ATO) lets us know what’s in the spotlight this tax time.

Along with work from home deductions and rental property expenses, the tax man will be taking a close look at capital gains in our 2022/23 tax returns.

Capital gains tax (CGT) only applies when you dispose of assets such as shares, ETFs, managed investments and cryptocurrencies.

That’s when you need to calculate the capital gain or loss for each asset you sell, giveaway or transfer to someone else.

Depending on the investment, CGT calculations can be complex. So it’s a good idea to partner with a registered tax agent to get it right.

ATO Assistant Commissioner Tim Loh doesn’t mince his words when he says, “Don’t fall into the trap of thinking we won’t notice if you sell an asset for a gain and don’t declare it.”

Banks band together to block scam payments

Australians lost $3.1 billion to scams in 2022, so it’s great to hear that banks are coming on board with a new digital platform designed to block scam payments before they reach fraudsters.

The Fraud Reporting Exchange (FRX) platform allows for near-real time reporting of fraudulent payments. This allows banks to freeze payments and recover as much money as possible when customers have transferred funds to scammers.

While the platform is a step in the right direction, the FRX still relies on Australians wasting no time letting their bank know they’ve been caught up in a scam.

As the Australian Banking Association’s Anna Blight points out, “The sooner that banks know about a fraud, the sooner they can take swift action to try to halt the payment before it gets to the scammers.” 

That matters because ABS figures[1] show one in ten people don’t even contact their bank after losing money to a scam. 

Which collectible tops 10-year returns?

The latest ATO statistics for self-managed super funds (SMSFs) show Australians are keen investors in collectibles.

Strict rules apply to holding collectibles in your SMSF. Notably, they can’t provide a present-day benefit, and that includes displaying or storing things like artworks in your home.

That hasn’t stopped SMSFs holding around $600 million worth of collectibles. And it’s a fair bet plenty of people invest in collectibles outside of super in the hope they will eventually increase in value.

But do they?

For context, Aussie shares have delivered total returns averaging 7.75% annually over the last 10 years[2].

The latest Knight Frank Luxury Investment Index[3] shows some popular collectibles have done well over the past decade.

Art has risen 91% in value over the last 10 years. Classic cars are up 185%.

There have also been some real stinkers. Jewellery (we’re not talking high street stuff) has increased just 44% in 10 years. Coloured diamonds are up by only 16%.

The big gains have come from rare whiskey, which has risen in value by 373% over the last decade.

Here too, we’re not talking about a drop you’ve picked up from Dan Murphy’s.

In 2022, for instance, Sotheby’s sold a bottle of The Macallan’s The Reach, 81-year-old whiskey for £300,000 (about $563,000) – triple the expected result.

The problem with collectibles is that you need expertise, or plain good luck, to pick a winner. Even then, the items need to be stored carefully, and owners face annual insurance premiums to protect the value of their asset.

Of course, when it comes to fine wines or rare whiskey, there’s always the very real temptation to knock the top off a bottle – something that would likely be very enjoyable, but which would see the value of your investment go down faster than a single malt.