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Wednesday, August 20, 2014

Bitcoin Gets Capital Gains Tax Break, Why Not Gold?

Late last year ('Glenn Stevens Talks Bitcoin & Competing Currencies') I pointed out that Bitcoin effectively can't be used as a competing currency (likewise for foreign currency or other assets such as Gold) given that it is subject to Capital Gains Tax (CGT) and monitoring the value of Bitcoins as they are acquired and disposed of would not be practical:
"Can you just imagine the administrative nightmare that would result from performing regular transactions in a foreign currency and having to maintain a record of whether you made a gain or loss as a result of fluctuation in the currency markets? It is simply not practical. Bitcoin is not immune from the same requirements." - Bullion Baron
However, earlier today the Australian Tax Office (ATO) released a statement (ATO delivers guidance on Bitcoin) in regards to Bitcoins and their tax treatment. Further information is available on the following page 'Tax treatment of crypto-currencies in Australia – specifically bitcoin' which specifies the following in regards to Bitcoins used in personal transactions:
Using Bitcoin to pay for personal transactions
Generally, there will be no income tax or GST implications if you are not in business or carrying on an enterprise and you simply pay for goods or services in bitcoin (for example, acquiring personal goods or services on the internet using Bitcoin). Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less.
The 'personal use asset' exemption would normally be reserved for items such as a boat, furniture, electrical goods or other household items which are exempt from CGT if purchased for less than $10,000.

The wording on the ATO website is somewhat ambiguous. Does the limit apply per year or can I buy low (to a maximum of $10,000 worth of Bitcoin) and spend high several times in the same financial year and still avoid CGT?

I think this is a good start and would like to see a similar CGT exemption for Gold (as I suggested last year in 'Let Australians Save in Gold Instead of Debt'). That said, I think the limit imposed is patronizing, why impose a limit at all if the Bitcoins are being purchased with the intention of spending them at a later time? Putting a $10,000 cap on the exemption limits the spending of Bitcoins to novelty use only, it wouldn't be adequate for someone having their income paid in Bitcoins, which was also covered on the site:
Paying salary or wages in bitcoins

Where an employee has a valid salary sacrifice arrangement with their employer to receive bitcoins as remuneration instead of Australian dollars, the payment of the bitcoins is a fringe benefit and the employer is subject to the provisions of the Fringe Benefits Tax Assessment Act.

In the absence of a valid salary sacrifice agreement, the remuneration is treated as normal salary or wages and the employer will need to meet their pay as you go obligations as usual.
I would like to see any monetary asset (Bitcoin, Gold or otherwise) that is saved for future consumption be exempt of Capital Gains Tax. That would allow us to truly have competing currencies in Australia. Being forced to save in a currency whose value is purposefully devalued (via central bank mandate to target 2-3% annual inflation) is madness, especially when interest earned on those savings is taxed and with the real cash rate already below 0.


Those who have purchased and sold Bitcoin specifically for investment are subject to CGT (or taxed as part of your income if traded in the business of regular profit-making):
Disposing of bitcoin acquired for investment

If you have acquired bitcoin as an investment, but are not carrying on a business of bitcoin investment, you will not be assessed on any profits resulting from the sale or be allowed any deductions for any losses made (however, capital gains tax could apply – although see the comments above about personal transactions). However, if your transactions amount to a profit-making undertaking or plan then the profits on disposal of the bitcoin will be assessable income.

There are no GST consequences where the bitcoin is not supplied or acquired in the course or furtherance of an enterprise you are carrying on.
There is another section for those in the business of mining Bitcoins:
Mining Bitcoin

Where you are in the business of mining bitcoin, any income that you derive from the transfer of the mined bitcoin to a third party would be included in your assessable income. Any expenses incurred in respect to the mining activity would be allowed as a deduction. Losses you make from the mining activity may also be subject to the non-commercial loss provisions.

Your bitcoin is trading stock and you are required to bring to account any bitcoin on hand at the end of each income year.

GST is payable on the supply of bitcoin made in the course or furtherance of your bitcoin mining enterprise. Input tax credits may be available for acquisitions made in carrying on your bitcoin mining enterprise.
The section that deals with ATMs and exchanges is probably the most off putting with an indication that businesses in this area will need to charge Goods and Services Tax (GST), likewise in the supply via mining as mentioned above:
Taxpayers conducting a bitcoin exchange (including bitcoin ATMs)

Where you are carrying on a business of buying and selling bitcoin as an exchange service, the proceeds you derive from the sale of bitcoin are included in assessable income. Any expenses incurred in respect to the exchange service, including the acquisition of bitcoin for sale, are allowed as a deduction. In these circumstances, the bitcoin is trading stock and you are required to bring to account any bitcoin on hand at the end of each income year.

GST is payable on a supply of bitcoin by you in the course or furtherance of your exchange service enterprise. Input tax credits are available for bitcoin acquired if the supply of bitcoin to you is a taxable supply.
This seems to put local Bitcoin exchange and supply businesses at a competitive disadvantage if they have to charge buyers a 10% premium. It would be likely to drive Australian Bitcoin buyers to international sources which don't charge GST.

It is good to see that the ATO has finally addressed Bitcoins for tax purposes, but I don't think they've done a particularly good job here.


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Friday, August 15, 2014

Go Big Or Go Home, Soros $2.2 Billion Bet On SPY Puts

As I've previously covered on this site (Soros Reloads SPY Puts, $1.3B Bet On S&P 500 Decline & Soros Fund Bets On Lower Stock Market (SPY Puts)), Soros has been betting big with a SPY Put position which has fluctuated wildly in size over the last couple of years. As reported in the latest 13 Filings the position just reached it's largest size yet in both nominal value and as a percentage of the portfolio (at least of those positions which are required to be reported for the 13F).
 
The $2.2 Billion position is now 16.65% of the portfolio which was a 605% increase over the previous quarter.
 
Click Chart To Enlarge
As I've explained in the past a SPY Put position is essentially a bet that the price of the stock market (S&P 500) will head lower, though the position could also be a hedge or part of a trading strategy. As the reporting period ended on June 30th, the position may be larger or smaller today.
 
The next largest holdings in the Soros Fund (for comparison in size) are a $450.5M position in YPF (Argentina's largest oil company) and a $411M position in SPY Calls (essentially the opposite of the SPY Puts). 

I'm reminded of some thoughts from Soros earlier in the year where he compared the situation in China to that of the US in 2008.
 
"The major uncertainty facing the world today is not the euro but the future direction of China. The growth model responsible for its rapid rise has run out of steam.
 
That model depended on financial repression of the household sector, in order to drive the growth of exports and investments. As a result, the household sector has now shrunk to 35% of GDP, and its forced savings are no longer sufficient to finance the current growth model. This has led to an exponential rise in the use of various forms of debt financing.
 
There are some eerie resemblances with the financial conditions that prevailed in the US in the years preceding the crash of 2008. But there is a significant difference, too. In the US, financial markets tend to dominate politics; in China, the state owns the banks and the bulk of the economy, and the Communist Party controls the state-owned enterprises." George Soros
 
With many of China's economic indicators deteriorating (such as the housing market turning down and a recent big drop in credit growth), a crisis of the magnitude seen in 2008 would likely impact equity markets negatively across the globe, especially those which are reaching overvalued levels. It's only speculation, but perhaps Soros position in the SPY Puts is related to his concerns in this area.
 


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Wednesday, August 13, 2014

Perth Mint Unveils Australia's 2015 Bullion Coin Program - Lunar Goat, Kookaburra, Koala & Kangaroo

Here comes the Perth Mint's 2015 bullion coin series. The release dates (date of availability from Perth Mint) are listed below:

1st September 2014 

2015 Australian Lunar Year of the Goat Gold Bullion Coin Series
2015 Australian Lunar Year of the Goat Silver Bullion Coin Series
2015 Australian Kookaburra Silver Bullion Coin Series

2nd September 2014 

Australian Lunar Series II 2015 Year of the Goat Gold Proof Coins
Australian Lunar Series II 2015 Year of the Goat Silver Proof Coins

6th October 2014 

2015 Australian Kangaroo Gold Bullion Coin Series

3rd November 2014 

2015 Australian Koala Silver Bullion Coin Series

Many of the bullion coins will be available to pre-order (prior to their release date), for readers in Australia I can recommend site sponsor Bullion Money. For those interested in the numismatic Perth Mint releases, making a purchase through this link supports this site:

The Perth Mint Australia
 
The 2015 Lunar Series Gold & Silver Bullion Coins (Year of the Goat) will come with the usual 30,000 limit for 1oz Gold coins and 300,000 limit for 1oz Silver. All other sizes (Gold and Silver bullion range) are unlimited in mintage, but production ends during the year they are dated (2015), except for the kilo Silver bullion Goat which can be produced until the Series 2 Lunar Coins are completed.
 
If you are interested in regular updates on lunar coins I would recommend visiting www.SilverLunar.com (another site that I write at mostly on lunar coin and some other numismatic coin releases).
 
The 2015 Kookaburra 1oz Silver Bullion Coin is limited to 500,000 this year as it was in 2011-2014 (over 1990-2010 it was limited to 300,000 coins, with some earlier years having been closed off with a lower number of sales).
 
The 2015 Koala 1oz Silver Bullion Coin is unlimited in mintage and only produced up to the end of the year it's dated.
 

2015 Perth Mint Kangaroo Gold Bullion Coin

 
 

2015 Perth Mint Koala Silver Bullion Coin

 
 

2015 Perth Mint Kookaburra Silver Bullion Coin

 
 

2015 Perth Mint Lunar Year Of The Goat Gold Bullion Coin

 
 

2015 Perth Mint Lunar Year Of The Goat Silver Bullion Coin

 



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Monday, August 11, 2014

Lunar Maa-aadness with 2015 Year of the Goat Coins

The Year of the Goat (Sheep / Ram) doesn't start until February 19, 2015, but that hasn't stopped investors and collectors alike from bleating for the next lineup of lunar themed coins. Mints the world over have taken heed and are already starting to show off or release their 2015 lunar goat coins.

Many of the releases we've seen so far I have covered on Silver Lunar and this post attempts to catch up readers of Bullion Baron who don't follow my other site. 

As was the case last year, the first major lunar coin to be unveiled and released into the hands of collectors was the Treasures of Oz 'Tokelau Lunar Family Series'. This is the third coin in the series, with the bullion version of the coin having a 50,000 piece mintage and reverse-proof finish (shiny image, matte background). A proof version was also released with a mintage of 2,500, another 1,000 in both gilded and coloured varieties and 2,000 with an antique finish (a finish type which has become popular in Europe and recently used by Perth Mint in their 'Gods of Olympus' coin series). The below image is a screen capture of both the bullion and proof coins via a very cool video from YouTube's 'dee silver' (which also shows off the earlier Tokelau lunar releases):

Tokelau Lunar Family Series - 2015 Year of the Goat - Bullion and Proof 1oz Silver Coins

Shortly after the Tokelau coin I spotted a sneak peek of the magnificent 'Niue 2015 $8 Lunar Goat Gold Plated 5oz Silver Proof' coin which has now been released by Downies. The coin is struck by PAMP, has a mintage of only 500 coins and has been received well by lunar collectors. Recent sales of the previous coin (Niue 2014 $8 Lunar Horse Gold Plated 5oz Silver Proof) on secondary markets show a healthy premium (selling between $1000-1500, double to triple release price). There's a good chance that the impressive design and low mintage will see the second coin in this series at least hold value at purchase price or perhaps even increase over time as the first has.

Niue 2015 $8 Lunar Goat Gold Plated 5oz Silver Proof Coin

Another set of coins which has just been released is that from the Royal Canadian Mint, who've labelled their series with 'Year of the Sheep' (Sheep, Goat or Ram are all fine to use). They've added a couple of new coins to their lunar line-up including a 23 gram Silver coloured coin and a 1/10oz Gold coin which adds an affordable price point for those seeking to collect Gold lunar coins. It's hard to recommend the Royal Canadian Mint lunar coins for investment as I haven't seen any noticeable appreciation in value past their purchase price. I think the several designs each year, changes to mintage numbers and addition of coins probably make it a difficult set for collectors to appreciate. I think some consistency here would be key to making the series more successful. However, if you like some of the designs and don't mind paying the premium, then it shouldn't stop you buying those coins you wish to buy and hold onto.

Royal Canadian Mint 2015 Year of the Sheep Coins

The Singapore Mint has released images, specifications and pricing of their 2015 Macau Lunar Goat Coins. The Silver coins in particular have proved so popular in the past that they are now sold by ballot. Their Gold and Silver coins both share the same image, but the colours and size differ between the three coins. The Singapore Mint is likely to produce other lunar coins and medallions for the Year of the Goat as they did for the Year of the Horse.

2015 Macau Lunar Goat Coins

There have been other less significant releases '2015 Plenty Year of the Goat - Niue Island' Coin which is in the shape of a goats head and the 'Goat Five Elements Lunar Year 1 Oz Silver Coin $2 Tokelau 2015'. They are ok for collectors who like the design, but aren't likely to attract significant interest from investors.

This brings us to those lunar goat coins which are yet to be released and there are still many more to come. They include a line-up of lunar coins (and bars) from the People's Bank of China, New Zealand Mint, PAMP, Royal Australian Mint and of course The Perth Mint.

The Perth Mint Australia
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While Perth Mint wasn't the first to market with a range of coins offering lunar designs, their success in recent years has arguably been what led to a much larger number of mints trying their hand at a lunar series of coins and/or bars.

The Perth Mint's next lunar coin releases will come on September 1st for the bullion series and the numsimatic coins (such as proof releases) start on September 2nd (with a variety of different types and releases being staggered over the following year). The embargo comes off the design in around 24 hours (August 13th). I have seen the new designs, here are some preview descriptions and thoughts in advance of their release to the general public:

Perth Mint 2015 Silver Lunar Goat Design: The design follows the styling cues of the 2014 Lunar Horse Coin with the leaves and branches of a tree bordering the top left hand side of the coin. There are some grass patches. There are 3 goats pictured all with long hair, two have their heads up and one has it's head down presumably eating some grass. Overall I think it's a solid design, I prefer it over the Perth Mint's 2003 Silver Goat Coin. Animal hair can be one of the most difficult elements to capture in a coin and it will be difficult to tell how well Perth Mint have done with this coin until seen in the flesh, but certainly the computer generated images give the indication they've done well to portray the long hair.

Perth Mint 2015 Gold Lunar Goat Design: This design illustrates a shorter haired mountain goat atop a rocky landscape with mountains in the background. The rocky foreground is quite detailed with the mountainous background pictured in a much simpler form. I think the backdrop on this coin lets down the design somewhat, I would have preferred to see detailed mountains as we saw on the Perth Mint's Gold Lunar Horse Coins last year. Overall I still think it's a good design and prefer it over the Perth Mint 2003 Gold Goat Coin.

From an investment perspective my thoughts haven't changed since I wrote in an article last year 'Lunar Horse Coins Are Bolting Out Of The Stable':
Many of the ‘modern numismatic’ lunar coin releases will set you back a very high premium over the content of the metal in the coin, for example most 1oz releases will set you back circa $100 which is currently a 400% premium to spot price, so the value of the coin will move in line with demand for that specific coin (rather than track the price of silver). Bullion lunar coins are sold on release with much lower premiums (usually around $5-10 over spot, 25-50% based on current spot price) and will more closely track the price of Silver, but can also achieve high premiums over time depending on the demand for the coin (for example the 2010 1oz silver bullion tiger from Perth Mint was widely available for $10 over spot per coin when released, but now commands a premium of $40 over spot). Some modern numismatic coins will hold their value or even increase over time, but the majority are unlikely to and in this writers opinion investors are best sticking with popular bullion lunar coins.

Of the lunar coins we can expect released over the next 12 months, it’s my opinion that the 1oz silver bullion lunar coin from Perth Mint is the best coin to purchase for those seeking a financial return (for investment). They have a low maximum mintage, an aesthetically pleasing design, a quality finish, are individually capsuled for protection, come with legal tender status from world renowned Perth Mint, are priced as bullion coins on release and are sought after by coin investors and collectors all over the world. If you expect the price of silver to continue appreciating over the long term, then they are a great option for exposure to the spot price, but come with the potential for a numismatic premium once sold out at the Perth Mint.
Both Silver and Gold have taken a beating the last few years, with the price of Silver currently around 60% lower than the early 2011 peak and Gold off 32%, but in comparison 1oz bullion lunar coins from Perth Mint have held up much better than other 1oz coins that track the spot price more closely. For example the 2012 1oz Silver Dragon sold at Perth Mint (available only for a brief time as it was a popular release) for A$48 on release, spot price was A$38. Spot price has dropped by around 43% to $21.50, but the 1oz Silver Dragons can be sold for around $40 by the roll (16% fall from release) or higher individually.

If you do plan to buy as a collectors item, then forget about what the price might do on the secondary market and buy what you like the looks of. If you are buying for investment then as I said in a post last year 'Don't Pay Too Much For 2014 Perth Mint Lunar Coins'.


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Monday, August 4, 2014

Replica vs Real: 1oz Gold PAMP Bar Comparison

It was bought to my attention that there are fake Gold bars being sold on ebay that replicate popular investment grade 1oz Gold bars. On this occasion they were being advertised as pure bars in the title, but if you read the full description it did state they are only layered in pure Gold. Having some real PAMP 1oz Bars myself I decided to buy one of the replicas to provide a comparison for others (and it arrived late last week). 

I have written about fake Gold and Silver products in the past, you can read my previous posts at these links:

Warning: Fake/Counterfeit Silver & Gold

Counterfeit Silver Lunar Dragons - Don't Get Stung!

Fake/Counterfeit Silver Lunar Coins on eBay, BEWARE! (Perth Mint Replicas)

The ebay auction from which I purchased my fake bar was titled “1 Oz Switzerland Pamp Suisse PURE 24K .999 1oz Gold Bullion Coin Bar Ingot”. The full description was as follows:
VERY RARE AND VERY LIMITED CAST

Brand new "1oz Switzerland Pamp Suisse bar " This bar is not solid gold.  It is clad/layered in pure fine 100Mills of 24k gold. This is a high quality item beautifully designed and manufactured to very high standard by master craftsmen in a small family owned mint in Australia.

Weight 1 ounce. 30 grams.

DONT MISS YOUR CHANCE TO OWN THIS BEAUTIFUL PIECE . A GREAT GIFT OR ADDITION TO YOUR OWN COLLECTION.

Beautifully designed and this Gold Bullion bar will be delivered to you in a free protective airtight capsule.
The title and parts of the description appear intentionally worded to try and deceive unwary buyers into mistaking it for a pure Gold bar from PAMP Suisse, even if it did also mention that it’s not solid and clad/layered. This reminds me of the old ‘console box’ scam where a seller advertises the box of a new console, stating as such, but obviously intending for buyers to bid thinking it’s the whole system. 

The seller of the fake Gold bar also suggested in the description that it was manufactured in Australia, when it’s clearly just a Chinese knockoff, likely to have been purchased from Alibaba (China's biggest online commerce company, which will be floated on the stock market later this year). Further to the misleading wording, the auction also had 3 images, the first two images depicted a real PAMP Suisse 1oz Gold Bar, with the final image showing one of the fake bars the buyer will actually receive.

Below is a photo comparison of the fake bar I received and a real bar, can you tell which is which before enlarging to view the detail and labels? See the top right corner of each image for the answer (click each image to enlarge):


Without the cropping it becomes a lot more obvious which is the fake, see below for a size comparison (click the image to enlarge):


Some obvious design differences include:

- No border around 'PAMP Suisse' logo on real bar
- Missing 'TROY' in text on fake bar (and wording order differs)
- Missing serial number on fake bar
- Corners are more rounded on real bar
- Detail on 'Lady Fortuna' design more intricate on real bar
- Real bar has a stronger yellow hue under the same lighting

Here are some specifications showing the weight and size difference between the fake and real PAMP Suisse bar…

Weight of fake bar (in plastic): 39.80g
Weight of real bar (in plastic): 36.28g

Weight of fake bar (out of plastic): 31.49g
Weight of real bar (per official specifications): 31.10g

Measurements of fake bar: 50 x 28 x 3 (mm)
Measurements of real bar (per official specifications): 41 x 24 x 1.70 (mm)

In this case it was relatively easy to differentiate the fake from the real bar, but keep in mind a copy like this can be purchased in bulk for less than US$1 per piece. There’s nothing to say that better quality fakes (including replication of the official packaging) might be out there. If they can produce this for less than a dollar, then imagine the quality of fake they could produce for $10.

By the way, if you were wondering about the red spots on the real bar, they are a common occurrence even on pure Gold bars and coins (via Lynn Coins):

Gold coins (and even pure gold bars) can sometimes develop brown (rust colored spots) on them. Yes, a gold plated item (when the gold plating wears off) would expose the non-gold metal underneath and that exposed metal could tarnish or rust. However, a brown or reddish spot on gold doesn't mean the item is not real solid gold. Here's why:

Rust spots or brown spots can occur on genuine gold coins when a very faint trace of other metal adheres to the surface of the coin or bar. As the other metal is exposed to oxygen or other materials in the surrounding air (can even be the air that is in the holder) it causes that trace metal to change color.

Often the a faint amount of trace metal or other material will get on the dies prior to the  striking of the coin or bar. When the coin is struck the molecules of the other metal (or impurities) are then fixed into the coin.  They may be so thin or dispersed that they are not obvious to the naked eye. Other times such impurities may come in contact with the coin blank before striking it into a coin. This surface discoloration can occur on gold coins and gold bars.
Be vigilant when buying precious metals, there’s likely to be more unscrupulous sellers than those who try to mislead, but confirm in the detail that they are selling a layered product. Some may even market a listing with description and images of real bars, but then send fake products while hoping the buyer doesn’t realise they are being swindled.

Some of the ways you can protect yourself when buying precious metals:

  • Buy from bullion dealers who source their product through official channels (I can recommend site sponsor Bullion Money for an Australian company and have also had good dealings with Gold Stackers, Bullion List, Perth Bullion, Perth Mint, City Gold Bullion, Ainslie Bullion Company and Bullion Mark, amongst others).
  • If the bullion dealer you are buying from sells buy-backs (second-hand), ensure they have equipment to test what they’re selling to you (e.g. XRF machine).
  • Limit the size of any single order with an individual or dealer to an amount you’d be prepared to lose if the deal goes sour.
  • When buying from ebay, pay with PayPal to ensure you are protected (this doesn’t cost the buyer any extra if purchasing through ebay).
  • If you are unsure about a the legitimacy of a product you’ve purchased, see if there is a local bullion dealer with an XRF machine who can test it for you.
Another way to test whether the product you have is pure Gold is to perform a specific gravity test.

Bullion manufacturers have been innovating in this space, but those replicating their products never seem to be far behind in copying their features. Take every precaution you can when turning your hard earned fiat into hard assets.


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