Individual Income Tax on personal property transactions

The growing trend of art collecting in Taiwan has led to questions about how to report income generated from the auction of art pieces for individual income tax purposes. According to the Kaohsiung National Tax Bureau of the Ministry of Finance, the calculation method for income derived from the auction of antiques and art pieces provided by individuals for auction in Taiwan is as follows:

1. For individuals who can provide sufficient documentation to substantiate transaction gains and losses:
• The income will be classified as "property transaction income" under Article 14, Paragraph 1, Category 7 of the Income Tax Act. The income is calculated by subtracting the original acquisition cost, as well as any related expenses incurred for acquiring, improving, or transferring the asset, from the transaction price.
2. For individuals who cannot provide sufficient documentation to substantiate transaction gains and losses:
• The income will be calculated based on 6% net profit from the auction revenue. However, if the tax authority determines that the actual income is higher than the income calculated using the 6% net profit rate, the income will be adjusted based on the data provided by the tax authority.

Additionally, the tax bureau offers clarification for individuals (domiciled in Taiwan) who trade art pieces through a cultural and artistic business recognized by the Ministry of Culture, which organizes exhibitions or auction events in Taiwan:

• Option 1: Separate Taxation
• The cultural and artistic business must apply for separate taxation with the Ministry of Culture at least one month prior to the start of the exhibition or auction event. If approved and with the seller's consent, the cultural and artistic business will act as the withholding agent for the income tax on the property transaction income. The taxable income is calculated as 6% of the transaction price, with a 20% withholding tax rate applied. This option is more beneficial for individuals whose overall income tax rate exceeds 20%.
• Option 2: Consolidated Income Tax Filing
• If the cultural and artistic business does not apply for separate taxation one month before the exhibition or auction event begins (including late applications), or if the seller does not provide consent (i.e., the seller does not opt for separate taxation), the seller must include the property transaction income in their total income and file it under the consolidated income tax.

In conclusion, individuals involved in trading art pieces should carefully evaluate the most advantageous option for reporting their income, as once the choice is made, it cannot be changed.

Related tax regulations:

1. According to Article 12 of the Enforcement Rules of the Income Tax Act: "The term 'occasional trading income' as referred to in Article 14, Paragraph 1, Item 1 of the Act refers to the income derived from the sale of goods by individuals. The calculation of such income shall follow the provisions of the Income Tax Act."

2. Further, according to the Ministry of Finance’s letter No. 65468, dated December 24, 1984: " Since 1985, the single net profit rate for occasional trading income of individuals under the Comprehensive Income Tax has been adjusted to 6%."

3. Accordingly, when an individual derives income from the sale of goods, if the actual costs and expenses are not substantiated, the net profit rate of 6% may be applied to calculate the profit, and the taxpayer shall file and pay the Income Tax by consolidating all income categories during the period from May 1 to May 31 of the following year.

4. There is no restriction on the identity of the buyer, but if the buyer is a profit-seeking enterprise, the enterprise is required to file the "Individual Occasional Trading Information Report" and "Individual Occasional Trading Data Form" with the tax authorities by the 15th of the second month following each bi-monthly period.