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Ruling

Subject: GST and second-hand gold jewellery

Question:

Is an Australian entity (you) entitled to claim an input taxed credit in accordance with Division 66 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on the purchase of second-hand gold jewellery, where the supplier is an individual that is not registered for goods and services tax (GST)?

Answer:

No, you are not entitled to claim an input tax credit in accordance with Division 66 of the GST Act to the extent that the second-hand gold jewellery consists of gold (or silver or platinum).

Relevant facts:

You is registered for GST.

You account for GST on an accrual basis.

You acquire second-hand gold jewellery from individuals who are not registered for GST.

The jewellery may be damaged or incomplete. However, some jewellery acquired may be in perfect condition.

The fineness of the gold jewellery is confirmed when it is acquired. The jewellery acquired has a fineness of 99.5% or more.

You acquire the gold jewellery for the purpose of sale and do not undertake any manufacturing process in relation to the gold jewellery acquired.

You do not import any of the gold jewellery, as all gold jewellery is acquired from within Australia.

The acquired gold jewellery is sold to another Australian entity (AusE), and this subsequent supply of the jewellery is treated as a taxable supply.

You do not divide gold jewellery into two or more separate supplies prior to the onward supply to AusE. You supply the gold jewellery to this single entity only. You and AusE are not related entities, and transactions are at arm's length.

Reasons for decision

Summary

To the extent that the second-hand gold jewellery consists of gold (or silver or platinum), that is the gold (or silver or platinum) component in the jewellery, you are not entitled to claim an input tax credit under Division 66 of the GST Act where you purchase the gold jewellery from a supplier that is not registered for GST. You are entitled to claim an input tax credit under Division 66 of the GST to the extent that the jewellery consists of the other metals and components.

Detailed reasoning

Division 66 of the GST Act provides that an acquisition of second-hand goods you make may be a creditable acquisition (allowing you to claim input tax credits) despite the fact that the supplier was not registered or required to be registered for GST.

Section 66-5 of the GST Act states:

From the information provided, you acquire the second-hand gold jewellery for the purpose of sale and do not undertake any manufacturing process in relation to the gold jewellery acquired. The supply to you is not taxable, and was not by way of hire. You do not import any of the gold jewellery, as all gold jewellery is acquired from within Australia. You do not divide gold jewellery into two or more separate supplies prior to the subsequent supply to AusE. Your subsequent supply will be a taxable supply.

What remains to be determined is whether the second-hand gold jewellery constitutes

second-hand goods.

The term 'second-hand goods' is defined in section 195-1 of the GST Act as:

The definition merely excludes certain types of goods.

Paragraph (a) of definition of second-hand goods

The term 'precious metal' is defined in section 195-1 of the GST Act as:

Goods and Services Tax Ruling GSTR 2003/10 discusses what is precious metal comprising of gold, silver or platinum.

Paragraph 10 of GSTR 2003/10 explains that to be a precious metal, a thing must be the metal gold, silver, or platinum of specified fineness, or a substance listed in the regulations. Paragraph 9 of GSTR 2003/10 states that no regulations have been made to specify any other substance.

For the purposes of paragraph (a) of the definition of second-hand goods, the metals gold, silver or platinum of specified fineness can only be termed as precious metals if they are in investment form. The term 'investment form' is not defined in the GST Act, and takes it ordinary meaning.

A summary of what is in an investment form is stated at paragraph 29 of GSTR 2003/10:

Paragraph 25 of GSTR 2003/10 provides that while jewellery is often marked with whether it is 18, 20 or 24 carat etcetera, this is not a standard that is accepted on the international bullion market as guaranteeing the fineness or quality of the metal. Such a marking is not sufficient for the metal to be in an investment form. Also, jewellery is not traded on the international bullion market.

Gold jewellery is not in an investment form and is not 'precious metal' as defined in section 195-1 of the GST Act for the purposes of paragraph (a) of the definition of second-hand goods in section 195-1 of the GST Act. Accordingly, the second-hand gold jewellery is not excluded from being second-hand goods under paragraph (a) of the definition of second-hand goods.

Paragraph (b) of definition of second-hand goods

Paragraph (a) of the definition of second-hand goods excludes any precious metal, as defined in the GST Act, from being second-hand goods.

Whereas, paragraph (b) of the definition of second-hand goods provides that second-hand goods do not include goods to the extent that they consist of gold, silver, platinum, or any other substance which, if it were of the required fineness, would be precious metal.

When interpreting paragraph (b), it is important to take into consideration the existence of paragraph (a) in looking at the context of the definition of second-hand goods. That is, paragraphs (a) and (b) are to be viewed as alternative mutually exclusive requirements.

Paragraph (b) of the definition of second-hand goods excludes from second-hand goods those goods that are entirely or partly comprised of a precious metal.

Paragraph (b) of the definition of second-hand goods uses the word 'goods'. The term 'goods' is defined in section 195-1 of the GST Act to mean 'any form of tangible personal property'. Further, paragraph (b) of the definition of second-hand goods uses the phrase 'goods to the extent', which implies that some degree of apportionment is inherent in this paragraph. With the use of the phrase 'any form', paragraph (b) of the definition of second-hand goods operates to exclude goods to the extent that they are comprised of precious metal (of the required fineness) whether they are in an investment form or not.

Paragraph (b) of the definition of second-hand goods has a much broader application than paragraph (a) of this definition. This interpretation is consistent with the apparent intention of Parliament to exclude goods to the extent that they comprise of precious metal of the required fineness, regardless of their form.

Whilst paragraph (b) of the definition of second-hand goods contains the term 'precious metal', the term does not give paragraph (b) the same effect as paragraph (a). The emphasis of paragraph (b) of the definition of second-hand goods is on the term 'the required fineness', which is determined by reference to the requisite fineness stipulated in the definition of precious metals.

Accordingly, second-hand gold jewellery is excluded from being second-hand goods under paragraph (b) of the definition of second-hand goods, but only to the extent of the gold (or silver and platinum) content of the required fineness.

For example, a 24 carat gold ring is non-alloy pure gold (99.9% or higher fineness). Therefore, a previously owned or used 24 carat gold ring is not second-hand goods. On the other hand, for an 18 carat gold ring containing 75% pure gold (99.9% or higher fineness) and 25% other metals, the gold contained in the ring is excluded from being second-hand goods. Any listed precious metals (that is, silver or platinum) contained in the ring will also be excluded from being second-hand goods. Other metals would not be excluded from being second-hand goods.

For completeness, paragraph (c) of definition of second-hand goods is not relevant in the circumstances described.

You are not entitled to claim an input tax credit under Division 66 of the GST Act to the extent that the second-hand gold jewellery consists of gold (or silver or platinum) when you purchase the gold jewellery from a supplier that is not registered for GST. You are only entitled to claim an input tax credit under Division 66 of the GST to the extent that the jewellery consists of the other metals and components.

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