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Collectables
Collectables or Hard assets is the term used to describe property such as Persian carpets, stamps, antique furniture, works of art, coins etc. that you purchase as an investments.
Great care should be exercised in the selection of hard assets as a means of investment. It should be regarded as a high-risk investment. Certainly it is not very liquid and the safety and security aspects need to be carefully considered.
Another major problem associated with this type of investment is the tax treatment of gains made on the sale of the asset. In most types of investment, it is possible to distinguish between the income and the capital portion of the asset.
For example, with property, the income portion is the rental received whilst the capital portion is the actual structure that earns the rental. The same analogy can be used in the case of share investments. Here, the income portion is the dividend whilst the capital portion is the share itself. The sale of the capital portion will, all things being equal,produces a capital gain that is not subject to tax. In the case of an asset like a Kruger rand, it is not possible to draw this distinction. The gain realised on the sale of the asset will, unless the opposite can be established, be treated as income.
The facts would seem to indicate that the intention of the investor in buying the coins was to sell them again at a profit. In income tax parlance this is evidence of a gain of a revenue nature. In order to rebut this conclusion, the investor must try and show that some other reason caused him to sell the asset. Arguments that have worked in the past include the need to raise cash to pay for unexpected medical treatment.
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