Collectibles, jewellery and luxury watches: Why should CGT reforms also matter to ordinary families?

When people hear the term capital gains tax (CGT), they often think of investment properties, shares and managed funds. However, according to Business Advisory Partner Ryan Lu, that perception only tells part of the story.

Ryan recently spoke on SBS Mandarin Radio to discuss the implications of the CGT refroms for ordinary families, covering the pratical considerations and potential impacts for taxpayers arising from the proposed changes. This article summaries his chat with SBS. To listen to the full podcast in Mandarin click the button below.

With the Federal Government's CGT reforms now formally enacted, much of the public discussion has focused on property investment and capital gains tax concessions. Ryan suggests that ordinary families may need to pay closer attention to assets they have long regarded as private collections or family heirlooms.

"When people hear about capital gains tax, they probably think of investment properties or shares first, but the range of assets subject to CGT has always been broader than many people realise."

Under Australian tax law, CGT does not only apply to investment assets such as real estate, shares and managed funds. Certain collectibles, including artwork, jewellery, antiques and stamps, as well as some high-value personal use assets, may also fall within the CGT rules.

These assets have not become subject to CGT because of the recent reforms. They have always been covered by existing legislation. What has changed is how CGT may be calculated in the future, increasing the importance of tax planning and record-keeping.

Why family heirlooms may warrant a closer look

Many families own valuable collections such as paintings, antiques, porcelain and other heirlooms. Some may have been purchased personally, while others have been passed down through generations. If these assets are eventually sold, CGT may need to be considered.

However, not all collectibles will result in a CGT liability.

Under current rules, collectibles are generally only subject to CGT if their original acquisition cost exceeded AU$500. Where the acquisition cost was AU$500 or less, any capital gain or loss is generally disregarded for CGT purposes.

Importantly, the AU$500 threshold is based on the original purchase price, not the asset's current market value.

For example, if a collectible was purchased for AU$400, it may still qualify for the exemption even if its value has since increased to tens of thousands of dollars. Conversely, if the asset originally cost more than AU$500, it may still be subject to CGT when sold, even if its value has changed only modestly.

In addition to collectibles, taxpayers should also be aware of "personal use assets" under Australian tax law.

These generally include items used personally by individuals or family members, such as furniture, household appliances, boats and recreational equipment. They do not include land, buildings, or items already classified as collectibles, such as jewellery, artwork and antiques.

Personal use assets are subject to different thresholds. If the original purchase cost was less than AU$10,000, any capital gain from a future sale is generally disregarded. If the acquisition cost exceeds that amount, the potential CGT implications should be considered.

What qualifies as a collectible for CGT purposes?

One question that has attracted considerable attention is whether valuable personal assets will need to be revalued under the new rules.

Ryan believes this may not be the most pressing issue at present.

Instead, he suggests that one of the biggest challenges is determining how certain assets should be classified.

Tax law clearly defines some categories of collectibles, including artwork, jewellery and stamps. However, many assets do not fit neatly into these categories.

"For example, is a luxury watch that has been carefully collected over many years a collectible or a personal use asset? How should designer handbags be classified?" 

Ryan explained that these questions cannot be answered simply by looking at the name of the asset. Factors such as the purpose of acquisition, intended use and actual usage may all need to be considered when determining the appropriate classification.

The distinction matters because different asset categories can affect the applicable thresholds, tax treatment and future valuation requirements.

It is unnecessary for families to rush into obtaining formal valuations for all their assets before 1 July 2027.

Under the reform framework, 1 July 2027 is expected to become an important reference date. The new system will distinguish between growth in value before and after that date, meaning some taxpayers may need to establish the market value of certain assets at that point in time when they are eventually sold.

Ryan cautions that obtaining valuations for every potentially relevant asset could be costly and impractical.

Instead, he recommends focusing on high-value assets that have limited market transparency, incomplete purchase records, and a greater likelihood of being sold, gifted or transferred to future generations. For these assets, retaining evidence of market value may be worthwhile.

"Not every item needs to be formally valued."

However, if taxpayers intend to rely on market value calculations in the future, waiting many years before gathering supporting evidence may make the process more difficult and could potentially attract greater scrutiny from the ATO.

Focus on record-keeping before valuation

For most families, Ryan believes the immediate priority should not be obtaining valuations but organising records.

He suggests preparing an inventory of high-value assets and recording key information about collectibles such as jewellery, watches, and artwork. This may include details such as the brand, artist, age, acquisition date and whether the asset was purchased, inherited or received as a gift.

Where original invoices or receipts are available, they should be retained. If those records have been lost, supporting documentation such as bank transfer records, shipping documents, insurance policies, photographs and email correspondence may also prove valuable.

For inherited collections, documents such as wills, gift declarations and estate distribution records may become important evidence for establishing ownership and provenance.

Ryan noted that while this information may not always be sufficient to establish an asset's cost base on its own, it can play an important role in future tax compliance.

He also cautioned that compliance itself can come at a cost.

In some situations, the cost of valuations, record collection and tax preparation may exceed the amount of CGT ultimately payable.

For that reason, he does not recommend selling collectibles or personal assets simply out of concern for future tax changes.

"These assets have not become subject to CGT because of the reforms, they were already covered by the existing rules."

Decisions about whether to retain or dispose of collectibles should not be driven solely by tax considerations. Families should also consider the personal significance of these assets and their broader long-term objectives.

Some clients have already begun seeking advice and organising information about their asset holdings. However, for most families, the best approach is to remain informed and take measured action.

"There is no need for excessive panic at the moment, but it would also be unwise to completely ignore these policy changes."

Need advice on how to navigate these changes based on your personal circumstances? Reach out to Ryan, or your local PKF advisor.