Application of the reverse charge
The reverse charge applies to valuable metal, which includes many forms of scrap gold, scrap silver and scrap platinum. However, 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 (that is, the gold, silver or platinum component) 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 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
Goods and Services Tax: Valuable Metals Market Value Determination 2018 (VM 2018/1) outlines 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
- 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 necklace, the dealer pays the client a price which is 50% of the spot price of the gold content – for example:
- $1,800 × 50% = $900.
The reverse charge does not apply to this transaction as the member of the public is not a GST registered business and no GST is included in the price charged to the second-hand dealer.
The second-hand dealer decides to on-sell this necklace to a refiner business for $1,900 (excluding GST). The price charged of $1,900 represents 95% of the spot price of the gold content on the day, which has now increased to $2,000. From the second-hand dealer's perspective, the goods were sold for $1,900 (excluding GST), which is less than the spot price of the gold content in the goods at the time of sale ($2,000).
In this example, the reverse charge is applicable, as the sale is business-to-business and the price charged does not exceed the market value of the valuable metal in the goods by 10% or more.
End of example