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Determining whether the reverse charge applies to individual products

How to determine whether the reverse charge applies.

Last updated 16 January 2020

The reverse charge is not intended to apply merely because the goods being sold have a precious metal component. The reverse charge will not apply when the market value of the goods exceeds the market value of the valuable metal component contained within the goods by more than 10%. When calculating the market value, values are GST-exclusive.

Application of 10% threshold test

In most cases, the 10% threshold test will be straightforward to apply. However, there may be cases when there is uncertainty, or when some suppliers and purchasers may expect to be parties to a high volume of transactions involving the supply of goods containing valuable metal. In these instances it may be difficult or costly for the parties to work out whether or not a particular supply of goods meets the 10% threshold test.

When these difficulties exist, the parties can enter into a written agreement so that GST on taxable supplies made by the supplier of goods containing the valuable metal can be ‘reverse charged’ to the purchaser.

When manufacturers and wholesalers sell a large variety of items and it is difficult to determine whether the items should be reverse charged, the Commissioner of Taxation expects businesses to voluntarily agree to apply the reverse charge.

Determining the market value

We have prepared a legislative instrument outlining that you determine the market value of the valuable metal contained in a good using the following formula on the date of sale:

  • (weight of valuable metal) × (spot price of the valuable metal on that date) where        
    • weight of valuable metal is the weight in troy ounces of the valuable metal in the good
    • spot price of the valuable metal on the date of sale is whichever of the following you choose        
      • one of the published rates for the date provided by an Australian entity recognised as a member of the London Bullion Market
      • one of the published Australian rates for the date reported by the London Bullion Market Authority (LBMA)
      • one of the published Australian rates for the date provided by a commercially recognised authoritative provider of spot price data.
       
     

Spot price value of goods vs price paid for value of the goods

Goods are regularly on-sold to another business (refiner or a jeweller) for more than the price that was paid. This is particularly if the spot price of the precious metal has increased. In these circumstances, the reverse charge needs to be considered on the day of the relevant transaction (at the time the goods are on-sold in this instance).

Example: On-sale transaction

An 18-carat gold necklace with a broken clasp is sold to a second-hand dealer by a member of the public. Based on the spot price of gold, and the quality and condition of the chain, the dealer pays the client a price which is 50% of the value of the gold content – for example, $90. The reverse charge is not applicable in this situation as the member of the public is not a registered business.

The second-hand dealer decides to on-sell this and other scrap jewellery purchased that is currently not selling in the store, to another business (that is, a refiner). The refiner pays 95% of the price of the gold content. From the second-hand dealer's perspective, the goods were sold for more than 110% of the purchase price, but less than the spot price of the value of the gold content at the time of sale.

In this example the reverse charge is applicable, as the sale is business-to-business and the price paid is less than 110% of the market value of the precious metal.

End of example

QC50847