Making a profit from car sale - Tax implications

xabi

This may not be the best place to ask this but, if you make a profit from a car sale, say 2K, what are the tax implications? Is it subject to CGT?

X.

Kinetic^

If you are a car salesman, then it could be subject to income or corporation tax.

If you mean by private sale then there is no CGT liable on the gain.

xabi

Thanks Kenny,

Yes, its private, somthing i plan on doing every 6 months or so.

X.

kluivert

I think that the VRO are taking details of your PPS No. to send you out a form 11 (income tax return) if you take in so many cars within a year.

Might be a dity rumour though.

Kinetic^

As Kluivert says, be careful or you'll have someone knocking on your door.

Biro

You'll really have a hard time convincing them if it's a frequent occurance of a 2nd car lying about your premises and for sale. But if you just happen to sell your own personal car every 6 months and happen to sell it for more than you bought it for, then would that be considered legit?

mickjohnlong

if its not a uk car what has it got to do with the vro unless this started on another one it does not mention anything about a uk car

xabi

It will be my primary car that i will drive for a while and sell on. I may or may not import the car, so VRO dont need to know.

X.

ondafly

AFAIK - if you sell more than 5 cars in one year, you are liable for tax, otherwise you should be ok. I don't have any links to this, just something I must have read somewhere

mickjohnlong

if its not an import and your not in the vro every second week/month should be a problem

Henry Ford III

A lot of clueless postings here.

If making a profit on buying and selling cars is done "in the nature of a trade" i.e. you are trading in car sales, then it's subject to tax.

The number of transactions are immaterial. A land holding company may not necessarily make any purchases or sales in a year, but are still trading.

O.P. said "Yes, its private, somthing i plan on doing every 6 months or so."

I would imagine that's an intent to trade.

Tipsy Mac

ondafly wrote:

AFAIK - if you sell more than 5 cars in one year, you are liable for tax, otherwise you should be ok. I don't have any links to this, just something I must have read somewhere

Heard similar myself. It's kind of strange, if anything they should be encouraging it as it's nice cash for them for providing the reg plate. There's no way to prove how much a person makes or looses on the sale of a car so if someone wanted to they could sell 50 cars in a year making over a grand on each and then sell a BMW M3 to their mate for €1.37 and that loss would cover the tax implications on the rest

xabi

Henry Ford III wrote:

O.P. said "Yes, its private, something i plan on doing every 6 months or so."

I would imagine that's an intent to trade.

How is it? I know alot of people who change their car yearly or less (although most dont make a profit). I am doing this as a hobby more than a side earner and wouldnt be too botherd if i only made a few quid. I just dont want the few quid i make be subjected to tax.

X.

SGKM

One of the few things that I remember from my tax course in college last semester is that someone in your position (ie you arent selling cars as a trade) will definately not be liable for cgt on the sale of that car!

the revenue see motor vehicles as wasting assets so they are cgt exempt, so in your case i'm 100% sure that you arent liable for cgt!

Henry Ford III

xabi wrote:

How is it? I know alot of people who change their car yearly or less (although most dont make a profit). I am doing this as a hobby more than a side earner and wouldnt be too botherd if i only made a few quid. I just dont want the few quid i make be subjected to tax.

X.

Take that one up with the Revenue if you wish.

If you buy and sell cars every 6 months with a view to making a profit, my view is that's trading, and any profit from that is subject to income tax.

Any loss you make would be allowable however and any expenses you incur in the carrying on of that trade would be allowable.

Cyrus

to be fair its a moot point, you'll do well to buy a car drive it for 6mths and make any cash, you might not lose anything but making cash is very unlikely

Kinetic^

Henry Ford III wrote:

Take that one up with the Revenue if you wish.

If you buy and sell cars every 6 months with a view to making a profit, my view is that's trading, and any profit from that is subject to income tax.

Any loss you make would be allowable however and any expenses you incur in the carrying on of that trade would be allowable.

Here's the thing, if he drives the car for 6 months then sells it on and makes a profit then it's not trading.......this is what he plans to do. If he buys a car and sells it within a week, then it would be trading. Simple example I know but this situation is not black and white.

overdriver

How is anyone to know what he makes on each car, assuming that some will be sold for cash? It would be far simpler to declare SOMETHING at the end of the year and pay tax on that, than have someone knocking on your door looking for financial records one day.

Given that any imnprovements you make to the cars can be offset against the profit, you would end up paying very little, and not be looking over your shoulder.

Kinetic^

Well the fact that there's an ownership document to be filled out means that they've got the buyer and seller right there........if they ask both how much it cost and it don't match, it'll probably be the seller that's lying.....giving the revenue suspicious thoughts.

maidhc

Henry Ford III wrote:

Take that one up with the Revenue if you wish.

If you buy and sell cars every 6 months with a view to making a profit, my view is that's trading, and any profit from that is subject to income tax.

Any loss you make would be allowable however and any expenses you incur in the carrying on of that trade would be allowable.

I am struggling with Irish Taxation Institute examinations at the moment. This seems to be as good as a textbook definition.

Kinetic^

Also, more food for thought......you know the way all the tax returns have been enabled to submit them online? Well has anyone heard of any redundancies been made by the Revenue? NO.......all the staff that used to process the returns are being ploughed into doing audits so if you think that this seems like a hassle free of making money, sooner rather than later, you'll get nabbed.

I know I've said that it's not black and white, but if your name keeps appearing on vehicle certs then you can be sure you'll get a knock on the door.

Biro

But why would you have to pay tax on selling your own car? At most you will only get a few hundred profit, and if the car is making a few grand profit then it must be priced in the mid-20s in order to return a profit like that, hence could actually take 6 months to find a buyer anyway, so you'll be doing well to sell 2 cars a year, each of them your own, so I doubt you'd be likely to fall under the trading rules.
Sure selling your dwelling house isn't suceptable to taxation, and everyone sells those for a massive profit!

GrumPy

Kenny 5 wrote:

Also, more food for thought......you know the way all the tax returns have been enabled to submit them online? Well has anyone heard of any redundancies been made by the Revenue? NO.......all the staff that used to process the returns are being ploughed into doing audits so if you think that this seems like a hassle free of making money, sooner rather than later, you'll get nabbed.

I know I've said that it's not black and white, but if your name keeps appearing on vehicle certs then you can be sure you'll get a knock on the door.

Advice from you, is about as helpful as a hefty dose of herpies!!!

maidhc

Biro wrote:

Sure selling your dwelling house isn't suceptable to taxation, and everyone sells those for a massive profit!

There is a particular exemption for your principal primary residence.

Kinetic^

Irish GrumPy wrote:

Advice from you, is about as helpful as a hefty dose of herpies!!!

FYI, it's spelt herpes.....now get back to school ya shirt lifter!!!!!

overdriver

There is doubtless a certain number of sales per annum that will "flag" you as being worthy of an audit. You might be ok, but who knows? Better to be safe, no?

unkel

Irish GrumPy and Kenny 5, stop the fighting and back on topic please

PauloMN

Can't see where the confusion arises here to be honest.

The OP is just going to be like any punter selling his own car, except a bit more often. He is not liable for tax as he is selling a car he has owned privately.

A dealer is a trade, and a dealer can buy a car and hold it without becoming an owner in the sense that a private person would i.e. a dealer doesn't go on the VLC. The OP will be named on the VLC of each and every car, and will buy/sell them himself.

Audits, knocks on doors.... get real guys.

Henry Ford III

Kenny 5 wrote:

Here's the thing, if he drives the car for 6 months then sells it on and makes a profit then it's not trading.......this is what he plans to do. If he buys a car and sells it within a week, then it would be trading. Simple example I know but this situation is not black and white.

Length of ownership is irrelevant.

Think of a business with low stock turnover rate. A jeweller may only sell his highest value items perhaps less frequently than 6 monthly, but he's still trading.

Henry Ford III

maidhc wrote:

I am struggling with Irish Taxation Institute examinations at the moment. This seems to be as good as a textbook definition.

Been there, done that. Tough exams.

Thanks

Henry Ford III

PauloMN wrote:

Can't see where the confusion arises here to be honest.

The OP is just going to be like any punter selling his own car, except a bit more often. He is not liable for tax as he is selling a car he has owned privately.

A dealer is a trade, and a dealer can buy a car and hold it without becoming an owner in the sense that a private person would i.e. a dealer doesn't go on the VLC. The OP will be named on the VLC of each and every car, and will buy/sell them himself.

Audits, knocks on doors.... get real guys.

Private ownership is irrelevant.

Yes a dealer who sets himself up a such obviously is trading, but the O.P.
quite clearly asked would profits from frequent purchases and sales be taxable.

My view is that this is likely be seen as trading, as the intent was to move cars with a view to the realisation of a profit.

The fact that his/her name might appear on log books is a side issue.

Whether or not such profits would fall into the tax net or not is another issue entirely. Self assessment is the law btw. It's not up to Revenue to catch anyone.

HashSlinging

I'd be very careful of this, esp if you plan on doing it every 6 months. You might be a victim of "Jealous Neighbour syndrome". Quick example - My Father in law is a cabinet maker and during the 70's to try and make ends meet he done a few nixers from his garage on Saturdays, a jealous neighbour rang the revenue and they sent a tax inspector around and was told to stop or he'd face fines.

Edit- but I know someone who buys and sells cars and earns roughly twice what I do, so go for it at your own risk.

Kinetic^

A trader never takes ownership of the vehicle. If he does then it become his car and if he sells it for a profit then it's not liable to IT/CT/CGT.

Ownership is the key here OP. I'd still be very wary of doing it myself but if the car goes into your name then it's seen as a wasting asset rather than stock in your inventory.

Blitzkrieger

HashSlinging wrote:

a jealous neighbour rang the revenue and they sent a tax inspector around and was told to stop or he'd face fines.

He's lucky that's all they did. They could have come along and assed him for seventy-bazillion pounds and it would have been up to him to prove that he didn't owe them. Guilty until proven innocent.

AFAIK there is a set number of cars you can sell a year before being considered a dealer. This means you won't get luxuries dealers get like dealer plates or garage insurance. Because a car is seen as capital, you may be liable for capital gains tax, but they'll never come after you. They wouldn't have the resources to check every car sale during the year and if they did selling a car every six months isn't going to raise flags. I know people with short attention spans who go through four cars a year. If they did suspect something, they'd never come after you anyway - the tax on the meagre profit you're likely to make (after expenses) isn't going to be worth the cost of the audit.

Henry Ford III

Kenny 5 wrote:

A trader never takes ownership of the vehicle. If he does then it become his car and if he sells it for a profit then it's not liable to IT/CT/CGT.

Ownership is the key here OP. I'd still be very wary of doing it myself but if the car goes into your name then it's seen as a wasting asset rather than stock in your inventory.

Of course a motor trader owns his stock!

Log book records are not relevant to the assessability of tax on profit.

Most "private" car sales lead to a loss, but if someone is casually trading in cars, i.e. buying and selling occaisionally, but with a view to making a profit the issue of whether or not his name appears on the log book does not matter.

The key here is the definition of "trading" for tax purposes.

Henry Ford III

Blitzkrieger wrote:

He's lucky that's all they did. They could have come along and assed him for seventy-bazillion pounds and it would have been up to him to prove that he didn't owe them. Guilty until proven innocent.

AFAIK there is a set number of cars you can sell a year before being considered a dealer. This means you won't get luxuries dealers get like dealer plates or garage insurance. Because a car is seen as capital, you may be liable for capital gains tax, but they'll never come after you. They wouldn't have the resources to check every car sale during the year and if they did selling a car every six months isn't going to raise flags. I know people with short attention spans who go through four cars a year. If they did suspect something, they'd never come after you anyway - the tax on the meagre profit you're likely to make (after expenses) isn't going to be worth the cost of the audit.

Nope. All wrong.

1 sale can be construed as trading. Garage plates or trade insurance are not relevant either.

Trading in "capital" assets is still trading. Case I schedule D for tax purposes. Income tax applies (for an individual).

Self assessment means it's up to an individual to declare and pay tax on their earnings. It's not up to Revenue to come after you.

Kinetic^

Henry Ford III wrote:

Log book records are not relevant to the assessability of tax on profit.

:rolleyes: Of course it's relevant. it could be deemed that if the car has been put into the OP's name then it is for private purposes.

Kinetic^

It's a transaction that falls under capital gains if the car is in the OP's name. The fact that's a wasting asset means no tax is liable. FACT.

Kinetic^

Sure if the log book wasn't important, you'd have every person buying 2/3 cars a year, making a loss on them and then claiming the loss against their employment income.

Get real ffs!!! :rolleyes:

Henry Ford III

Kenny 5 wrote:

:rolleyes: Of course it's relevant. it could be deemed that if the car has been put into the OP's name then it is for private purposes.

If the OP is trading the tax people can look through this. It's a basic principle of tax law.

Henry Ford III

Kenny 5 wrote:

It's a transaction that falls under capital gains if the car is in the OP's name. The fact that's a wasting asset means no tax is liable. FACT.

No. Trading as defined (again) is the key term here.

If the OP is not trading in cars no tax event occurs.

If they are then any profit is assessable.

Kinetic^

Henry Ford III wrote:

If the OP is trading the tax people can look through this. It's a basic principle of tax law.

How exactly are they going to determine who in the buy and sell is trading and who isn't? It comes down to ownerhip but you seem to be in denial about that.

Henry Ford III

Kenny 5 wrote:

Sure if the log book wasn't important, you'd have every person buying 2/3 cars a year, making a loss on them and then claiming the loss against their employment income.

Get real ffs!!! :rolleyes:

You clearly do not have the abilty to comprehend what's been written here.

Most people do not trade in motor cars as a business. As such any loss on the difference between the purchase and sale prices of their cars is disregarded for tax purposes.

I think this will be response on this btw. If you can't appreciate the difference please carry right on (in ignorance).

Henry Ford III

Kenny 5 wrote:

How exactly are they going to determine who in the buy and sell is trading and who isn't? It comes down to ownerhip but you seem to be in denial about that.

One last attempt..

1/. A trader buys and sells cars with a view to a profit. Whether or not their name appears on a VLC isn't of any relevance to the Revenue.

2/. An ordinary owner doesn't trade cars.

Simple.

Kinetic^

xabi wrote:

It will be my primary car that i will drive for a while and sell on.

Henry Ford III, this statement above shows that he will be an ordinary owner, how are the revenue going to prove otherwise?

Xabi buys car. Drives it for a while. Sells it. Makes either a profit or a loss like any other private seller might do. No tax liability as it falls under CGT. Put you or me in that situation, are we traders? NO.

You're trying to distinguish the OP as a trader when he isn't one.

If Xabi buys a house, lives in it, sells it for profit or loss........is he an estate agent? NO.

Carb

The Tax Acts do not set out any specific rules for distinguishing between trading and non-trading income. However, a fairly well established set of guidelines have been laid down by the courts in various decided cases over the years. These are known as the “Badges of Trade”, which include: -

1.THE SUBJECT MATTER OF THE SALE.

Whilst almost any form of property can be acquired to be dealt in, those forms of property, such as commodities or manufactured articles, which are normally the subject of trading, are only very exceptionally the subject of investment. Again, property, which does not yield to its owner an income, or personal enjoyment merely by virtue of its ownership is more likely to have been acquired with the object of a deal than property that does.

2.THE LENGTH OF PERIOD OF OWNERSHIP.

Generally speaking, property meant to be dealt in is realised within a short time after acquisition. But there are many exceptions from this as a universal rule.

3.THE FREQUENCY OF SIMILAR TRANSACTION.

If realisations of the same sort of property occur in succession over a period of years or there are several such realisations at about the same date a presumption arises that there has been dealing in respect of each.

4.SUPPLEMENTARY WORK.

If the property is worked up in any way during the ownership so as to bring it into a more marketable condition, or if any special exertions are made to find or attract purchasers, such as the opening of an office or large-scale advertising, there is some evidence of dealing. When there is an organised effort to obtain profit there is a source of taxable income. But if nothing at all is done, the suggestion tends the other way.

5.THE CIRCUMSTANCES THAT WERE RESPONSIBLE FOR THE REALISATION.
There may be some explanation, such as a sudden emergency or opportunity calling for ready money that negates the idea that any plan of dealing prompted the original purchase.

6.MOTIVE.

There are cases in which the purpose of the transaction and sale is clearly discernible. Motive is never irrelevant in any of these cases and can be inferred from surrounding circumstances in the absence of direct evidence of the seller’s intentions.

It is however, important to appreciate that the “whole picture” must be taken into account, so that the weight to be given to the various factors may vary according to circumstances. Furthermore, it is important to recognise that any given factor may be present to a greater or lesser degree, and that the absence (or presence) of any single factor is unlikely to be conclusive in its own right.

The above are the Revenue's badges of trade. IMO, the OP could be classed as trading, but whether the Revenue would be bothered is a different story.

Kinetic^

According to the badges of trade the OP is borderline. He hasn't stated if he's going to enhance the vehicle in any way which would IMO lead to definitive trading status.

Sure he could be considered a trader but quite frankly if he were, I reckon you'd have a big legal battle to determine if he was. Depending on which way that went, you could have an overhaul in legislation in relation to buying or selling cars.

Think about it, you'd have something similar to PPR for cars and then you've apportion the amount of time that it was in private use against how long it's been on sale (or something to that affect). Just not going to happen.

Henry Ford III

You do not need to tick every box of the badges of trade for trading to take place.

If a land holding co. buys a pacel of land and sits on it for years, and sells it on again for a profit any profit is clearly assessible (to C.T. in this instance).

No enhancement is necessary.

Likewise a jeweller who buys a polished diamond and sells it again at a profit has made no enhancement.

Badges of trade (I'm very familar with them) are only indicators.

I agree Kenny it's a bit borderline, perhaps too much trouble for Revenue to be intereted in, but that doesn't change the principle.

Kinetic^

Henry Ford III wrote:

You do not need to tick every box of the badges of trade for trading to take place.

If a land holding co. buys a pacel of land and sits on it for years, and sells it on again for a profit any profit is clearly assessible (to C.T. in this instance).

No enhancement is necessary.

Likewise a jeweller who buys a polished diamond and sells it again at a profit has made no enhancement.

Badges of trade (I'm very familar with them) are only indicators.

I agree Kenny it's a bit borderline, perhaps too much trouble for Revenue to be intereted in, but that doesn't change the principle.

Granted but I think it's more than a bit borderline. Agree to disagree?

Henry Ford III

Of course

PauloMN

Henry Ford III wrote:

You do not need to tick every box of the badges of trade for trading to take place.

If a land holding co. buys a pacel of land and sits on it for years, and sells it on again for a profit any profit is clearly assessible (to C.T. in this instance).

No enhancement is necessary.

Likewise a jeweller who buys a polished diamond and sells it again at a profit has made no enhancement.

Badges of trade (I'm very familar with them) are only indicators.

I agree Kenny it's a bit borderline, perhaps too much trouble for Revenue to be intereted in, but that doesn't change the principle.

A land holding company and a jeweller are both already traders though.

An individual buying and selling a car, held privately and with the owner on the VLC is just that - a private individual - and is entitled to sell his/her car for a profit/loss without any tax liability.

The VLC thing is very important. A car trader can hold cars (and yes - own them) but does not have to be a named/registered owner on the VLC. This gives him/her an advantage over an individual in that they are not another registered owner of the car.

If someone buys a Micra and goes named on the VLC, they have become the registered owner of the car and they can sell it privately for a million quid if someone is daft enough to pay them as such. They own it privately, in a completely different manner to a car trader.

The only restrictions to private individuals selling the cars they are the registered owners of as regards tax implication is for VAT and VRT purposes i.e. if an individual has bought a car into Ireland VRT and/or VAT free, like someone moving from the UK (VRT excempt) or a car adapted for a driver/passenger with physical disabilities (VAT & VRT excempt)