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

The breaking news this month: ATO shines a spotlight on capital gains, new banking platform stops scammers in their tracks, and the collectible that's delivered 373% returns.
By · 25 May 2023
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25 May 2023 · 5 min read
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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.

 

[1] https://www.abs.gov.au/statistics/people/crime-and-justice/personal-fraud/2021-22

[2] https://www.spglobal.com/spdji/en/indices/equity/sp-asx-200/#overview

[3] https://content.knightfrank.com/resources/knightfrank.com/wealthreport/the-wealth-report---apr-2023.pdf

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Frequently Asked Questions about this Article…

Capital gains tax (CGT) is a tax on the profit you make when you dispose of assets like shares, ETFs, managed investments, and cryptocurrencies. It applies when you sell, give away, or transfer these assets to someone else.

To ensure accurate capital gains tax calculations, it's a good idea to partner with a registered tax agent. They can help navigate the complexities of CGT calculations and ensure you meet your tax obligations.

Banks are using a new digital platform called the Fraud Reporting Exchange (FRX) to block scam payments. This platform allows for near-real time reporting of fraudulent payments, enabling banks to freeze and recover funds quickly.

To protect yourself from scams, report any suspicious activity to your bank immediately. The sooner banks are aware of a fraud, the quicker they can act to prevent payments from reaching scammers.

Collectibles can be part of a self-managed super fund (SMSF), but strict rules apply. They cannot provide a present-day benefit, such as being displayed in your home. While some collectibles have increased in value, investing in them requires expertise and careful storage.

Over the past decade, rare whiskey has shown the best returns, increasing by 373%. Classic cars have also performed well, rising by 185%. However, not all collectibles have fared as well, with jewellery and coloured diamonds showing more modest gains.

Investing in collectibles carries risks, including the need for expertise to pick winners and the requirement for careful storage. Additionally, there are annual insurance premiums to protect the value of your assets.

Reporting scams to your bank quickly is crucial because it allows banks to take swift action to halt payments before they reach scammers. Prompt reporting increases the chances of recovering your funds.