PETALING JAYA: With the card-collecting hobby turning into a money-making venture with thousands of ringgits moved in single transactions, the taxmen are keeping a close eye out for any tax discrepancies and doing audits to clarify statuses.
The Inland Revenue Board (LHDN) said it is aware of the growing market for high-value collectables, in particular trading cards, and urged collectors to be aware of tax responsibilities if their hobbies are deemed to be business transactions.
“We are aware of the growing market for high-value collectables, including trading cards. While such activities often begin as a hobby, they may become subject to income tax if they are carried out in a manner that indicates a profit-making or business activity under paragraph 4(a) of the Income Tax Act (ITA),” the board told The Star recently.
LHDN explained that it also has a mechanism to determine whether any profits made during such trading are taxable.
“To determine if profits from collectable trading are taxable, we apply established ‘badges of trade’ that evaluate various factors. These include the frequency and volume of transactions, the intention to make a profit (whether it’s speculative or a personal collection), the method of financing, the holding period and the level of organisation (e.g. systematic buying and selling or the use of platforms).
“Where activities resemble trading or dealing, which is similar to stock trading in nature though not identical in tax treatment, profits would generally be treated as business income under paragraph 4(a).
“However, occasional sales of personal collectables without a profit motive are generally not taxable,” it said.
The LHDN also clarified a common misconception that they only go after those who make exorbitant amounts of profits.
“A hobby can become taxable when it evolves into a profit-oriented activity carried out with regularity and structure.
“There is no minimum profit threshold. Taxability depends on the nature of the activity, not the amount earned. Even small profits may be taxable if the activity is considered a business,” it said.
Various indicators are used to evaluate including frequency of transactions, a short holding period and large bulk purchases.
Despite the typical cash-heavy market, the LHDN said the onus is on the collector to report taxable income and maintain proper records.
“Audits may be carried out where risk indicators are identified such as discrepancies between declared income and lifestyle, unexplained asset growth or patterns of activity that suggest income-generating behaviour.
“Profits from trading activities, including those involving overseas transactions, may be taxable if they fall within the scope of income under the ITA,” it said.
Under Section 3 of the ITA, the scope of taxation covers income “accruing in or derived from Malaysia” as well as income “received in Malaysia from outside Malaysia”.
The LHDN added that it is keeping a close eye on social media influencers who flaunt their profits online, including income from trading, commissions or sponsorships and promotional activities.
The LHDN also urged those involved in trading to assess their activities to identify if it has turned into a business or remained as a hobby.
It also urged them to maintain proper documentation, including records of sale and purchases, and to seek professional advice when needed.
