Thursday, July 23, 2015

How About Fair GST Treatment For Bullion?

In an article I was reading yesterday about the GST-free threshold for imported goods, which postured support for a lowering the cap from $1000 to $20, there was a video containing this message from Craig James (CommSec's Chief Economist):
"Certainly we believe this is a fair tax because if it is the case that people are traveling overseas and over the net to buy goods, bypassing Australian goods. Well really the same goods should be charged the same price whether you're buying overseas or getting it domestically."
There has also been recent talk of raising the GST in Australia from 10 to 15%.

As a proponent for small(er) government and less taxes I'm not particularly fond of the latter suggestion, but I do concur with James' view that a fair tax should see comparable goods charged the same amount of tax. Not only for consumer goods, but also for investment assets. This is one area that bullion (as an investment asset) is short changed.

A guide I wrote on buying Gold and Silver in Australia describes when bullion is GST free:
GST (Goods & Services Tax): Investment grade Gold (99.5%+ fine) and Silver (99.9%+ fine) bullion is not subject to GST. Bullion products of a lesser grade (for example 22k Gold coins like Sovereigns & Krugerrands or 92.5% sterling Silver coins) do attract GST when sold by a bullion dealer.
That results in some of the most commonly purchased bullion investment coins being burdened with GST as they don't meet the minimum finesse (Gold sovereigns and the 1966 Australian fifty-cent piece are just two examples).

1966 Australian fifty-cent pieces, only have 80% Silver content
This unfair addition of GST to an investment asset is something I would like to see changed as I wrote  2 years ago:
Increase the scope of the definitions "precious metal" & "investment grade bullion" for taxation purposes to include coins containing Gold, Silver, Platinum or Palladium (any finesse) which are now or once were legal tender of Australia or any other nation and which trade as a function of the spot price.

Precious metals are often traded in widely recognised investment forms which don't meet the strict scope defined by the Australian Taxation Office. Investment grade bullion below 99% for Platinum, 99.5% for Gold and 99.9% for Silver is subject to Goods and Services Tax (GST). This means dealers are required to charge GST on coins which many hold for investment purposes, but aren't exempt from GST, for example American Gold Eagles (91.6% Gold), Gold Sovereigns (91.6% Gold) and Round Australian 1966 50 Cent Pieces (80% Silver). Such legal tender coins which trade as a function of spot price (consistently trade at spot + x% premium) would be made exempt from GST.
I was also recently made aware (thanks Bron!) that there are other limitations to the GST free status of bullion (that I wasn't familiar with), such as a requirement for the metal to have been refined by a refiner:
"To have this GST-free status one of the requirements is that the metal has been refined by a refiner of precious metal. To be a refiner of precious metal, an entity has to satisfy the Commissioner that the entity regularly converts or refines precious metal in carrying on its enterprise." ATO (What is 'precious metal' for the purposes of GST?)
That means despite the hallmarking of these hand poured Silver bars I recently purchased, if they'd been sold in Australia by a dealer they may have needed GST applied (I bought them direct from the overseas producer in a package that was lower than the current $1000 GST-free threshold).

Home Made Redwood Poured Silver Bars
I think it would be fair to see GST removed from all bullion that is bought for the purpose of investment and where it trades as a function of spot price as I wrote last year:
Perhaps the exemption could be expanded to cover any precious metal which trades as a function of spot price, so that tax fraud is no longer as simple as defacing investment grade bullion, changing it into a form which can suddenly benefit from input tax credits.
That would put the precious metal asset class on a level playing field with others (such as shares), surely that's something that even Craig James could get behind!

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4 comments:

  1. Admirable sentiments but the Government will only listen to proposals that increase revenue. I think the law should be changed to be a value added tax, that is, (price paid - precious metal value at spot) x 10%. That way the government doesn't tax the underlying metal value and only the premium. They would get additional revenue from all the premiums on bullion and lose a bit on numismatics (but most of numismatic price is premium), I think it would net out reasonably well.

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  2. Thanks for the input Bron, I think that's a reasonable alternative/proposal. It would put bullion on even ground with shares and other assets where GST is typically charged on any brokerage/transaction costs.

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  3. There is of course a difference between a refiner and a fabricator - if the silver used in the manufacture of those bars had been supplied by a regular refiner, then there shouldn't be an issue. The only real issue is whether the ATO will burden GST-registered resellers with an onus of proof for such niche items. Of more likely concern to the ATO would be a retailer selling gold bars that were the product of a "garage" or "hobby" refiner, and claiming that they should be GST-free simply because they meet purity requirements.

    There is some debate amongst Australian producers as to whether *any* imported silver rounds of non-legal tender status (e.g. private rounds from the US), or imported silver bars of non-LBMA origin, should qualify for GST-free status, but this could easily be clarified with a GST private ruling being sought by an importer on one of the contentious products.

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  4. Thanks for the input. Which qualification wouldn't the private rounds/non-LBMA bars meet (or be in debate) for GST free status?

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