Hobby tax query

CDickens

Newbie with a fairly specific income tax question. I started a hobby in 2020. Let's say it's collecting rare Venezuelan coins (it's not but it's something along those lines). I buy them from Ebay and other international websites. Over the more than three years since I started I've bought and sold a lot of Venezuelan coins. I buy them, use them (that is to say, admire them, share photos with other collectors etc). I exchange them, sell them on. I have spent nearly €100,000 over the course of these three years. I've recouped about €98000 in sales. I am not a business. I don't advertise. However, I've acquired some expertise in the area and I now have a collection that (in the right hands with the right market) is worth around €20000.

I put the scenario past my accountant who said: "It's a hobby, hasn't generated any profit - there's no tax liablility." I want to be absolutely sure. Anyone got any idea? I have not generated a profit but I have generated a collection.

Geuze

Read about "badges of trade".

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-02/02-02-06.pdf

Geuze

https://www1.lexisnexis.co.uk/taxtutor/public/business/2a_business_tax/2a10-01%28F%29.pdf

This is a discussion in UK, but I suspect Irish law is similar:

Jim_Hodge

https://www.boards.ie/discussion/2058293338/hobby-tax-query

I'm curious why your accountant's opinion needs confirmation or refuting by potentially unqualified forum users.

downtheroad

You are trading, as per the Badges of Trade posted by Geuze. You mentioned you have bought and sold a lot of these coins, so this brings you into the realm of carrying on a trade.

If you've made a €2k loss previously you should have declared it so you could offset it against future profits.

Also your accountant sounds useless. Income from a hobby is still income, and therefore taxable in the eyes of Revenue.

namenotavailablE

I'd also be careful about the calculation of profit or loss. If you've spent 100k purchasing coins but didn't sell them all, the profit is the difference between sales proceeds and the net cost of the items sold ( to calculate the net cost, you need to deduct the cost of the unsold coins from the gross purchase cost). It isn't clear that's what was done.

CDickens

Thanks to everyone who's replied on this thread - sorry for delay in getting to them, I was expecting an e-mail to notify me of responses!

The scenario is that I've spent around €100,000 and received around €98000 PLUS my collection is worth in the region of €17000 (it's probably worth more but that's what I paid for it). For this to be possible, the €17000 worth of coins is factored into the overall spend of €100,000. (I suppose you could put it differently - I've bought €83000 worth of coins that were sold for €98000. I currently own €17000 worth of coins).

I've two responses dealing with the role of the accountant. One asks: why do you doubt him? The other says: he's an idiot, why are you listening to him. Hard to know what to do with that;-) I guess I'm aware that if Revenue dug into my accounts the excuse: "my accountant told me it was okay" is worth little as a defence.

As it happens, I think he (the accountant) was going on the 'badges of trade' criteria above but he concluded differently to at least one of the posters.

So, let's say I do have a tax liability. My overall cash spend is €2000 more than my hobby income. Value (maybe not value, but cost) of what's currently in my collection is €17000. I've been at this hobby for four years. Would I be allowed to take four years worth of hobby profit allowance (I think it's €1500 a year) and deduct that from tax liability?

One final word on my collection. It is a revolving collection; virtually all of it will be traded or sold in next few years. Could it be counted as stock rather than profit?

Seve OB

https://www.boards.ie/discussion/comment/120505714#Comment_120505714

He hasn’t had any losses

relax carry on

https://www.boards.ie/discussion/comment/120512786#Comment_120512786

Hobby allowance of 1500 euro? What are you on about?

I'm guessing you are talking about the annual €1,270 exemption for capital gains. If you are that relates to capital gains tax not income tax. You'd want to figure out if what you are doing falls under income tax or capital gains tax.

CDickens

https://www.boards.ie/discussion/comment/120512884#Comment_120512884

Correct. I'm aware some people try to use money spent on hobbies to offset tax on income. I'm definitely not trying to do that.

CDickens

https://www.boards.ie/discussion/comment/120512897#Comment_120512897

I'd read somewhere that there's some sort of allowance for trading gain in a hobby that is exempt from tax. There certainly is in UK and perhaps I've imagined that for here.

CDickens

When I presented it to the accountant I understood its possible liability to be Capital Gains Tax.

downtheroad

https://www.boards.ie/discussion/comment/120512884#Comment_120512884

I misread that as 100k spend and 98k received, 2k loss. Didn't factor in the current holding of 17k

Seve OB

Actually I guess it’s possible there have been losses of some of the trades but they have been offset against some of the gains to give a net positive

also 2020,21,22&23 is 4 years so if you are talking CGT you could be talking 4 allowances of 1270, all depending on when trades were bought and sold

kazamo

My view is that you have a trading profit of 15k since you started in 2020 which is subject to income tax as you don’t trade as a limited company. Not sure how you would get into the CGT category as you have repeated purchases and sales.

Now the tricky part is if you are gainfully employed, and if so, your profits will be taxable at your marginal rate and throw in usc and social insurance as that goes on everything.

You need to get a second opinion from another accountant in practice ……relying on a verbal communication won’t save you if and when Revenue come calling.

CDickens

Thanks again for all the comments and help. I've been setting aside money for the tax liability so I'm not overly concerned at having to pay it. Obviously, if my accountant had been right, I'd prefer not to have paid. I have his opinion in writing. Thanks for your help - now to see how regularise all of this:-)

CIARAN_BOYLE

https://www.boards.ie/discussion/comment/120512928#Comment_120512928

Whats the number of transactions you went through.

There's no hard and fast rule but if its a dozen transactions its easier to argue that its capital gains tax but if theres 100 transactions its more likely to be considered a trade.

https://www.boards.ie/discussion/comment/120512786#Comment_120512786

On the topic of stock vs profit I think you fail to understand.

Very basic accounting

Sales - Cost of Sales = Gross Profits

Cost of Sales = Opening Stock + Purchases - Closing stock

So stock is clearly considered part of the profit.