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Edited version of your private ruling
Authorisation Number: 1012446564612
Ruling
Subject: GST and second hand jewellery
Questions
1. Are you entitled to claim input tax credits on the purchase of second-hand gold and silver jewellery from the public?
2. Is your sale of refined gold and silver to the refinery subject to GST?
Decisions
1. No, you are not entitled to claim input tax credits on the purchase of second-hand gold and silver jewellery from the public.
2. No, the sale of your gold and silver to the refinery immediately after their refining into precious metal will be a GST-free supply, if your refiner satisfies the definition of a refiner of precious metal and a dealer in precious metal.
Relevant facts and circumstances
You are a second-hand goods dealer. You intend to commence an enterprise of purchasing second-hand gold and silver jewellery such as broken and damaged rings from the public. You will pay market prices to the suppliers of such jewellery.
Before you commence this enterprise, you will be registered for goods and services tax (GST).
The absolute majority of your suppliers of second-hand jewellery will not be registered for GST.
As a second-hand goods dealer, by legislation, you are required to hold on to the goods for a minimum period of 10 days.
Once you purchase sufficient quantities of second-hand jewellery, you intend to melt the jewellery and produce gold and silver blocks. That is the only form any precious metal refinery (refinery) will accept your gold and silver for refining.
You intend to despatch these gold and silver blocks to a refinery and get them refined into investment grade gold and silver bullion bars. You will not sell the gold and silver blocks to the refinery. The title to them will always remain with you.
You will pay a fee to the refinery for refining your gold and silver blocks.
Once your gold and silver are converted into bullion bars, you will sell them to the refinery.
Relevant legislative provisions
A New tax System (Goods and Services Tax) Act 1999 (GST Act) - section 11-5
A New tax System (Goods and Services Tax) Act 1999 (GST Act) - section 38-385
Reasons for the decisions
Decision 1
Section 11-5 of the GST Act provides that you make a creditable acquisition if:
(a) you acquire anything solely or partly for a creditable purpose; and
(b) the supply of the thing to you is a taxable supply; and
(c) you provide, or are liable to provide, consideration for the supply; and
(d) you are registered, or required to be registered.
If a supplier of second-hand jewellery is not registered for GST, the supply of the jewellery to you will not be a taxable supply and paragraph 11-5(b) of the GST Act will not be satisfied. Therefore, you will not make a creditable acquisition and you will not be able to claim an input tax credit.
However, subsection 66-5(1) of the GST Act provides that if you acquire second-hand goods for the purpose of sale or exchange (but not for manufacture) in the ordinary course of business, the fact that the supply of the goods to you is not a taxable supply does not stop the acquisition being a creditable acquisition.
Subsection 66-5(2) of the GST Act provides that this section does not apply and is taken never to have applied to the acquisition if:
(a) the supply of the goods to you was a taxable supply or was GST-free; or
(b) you imported the goods; or
(c) the supply of goods to you was a supply by way of hire; or
(d) Subdivision 66-B applies to the acquisition; or
(e) you make a supply of the goods that is not a taxable supply.
Subsection 66-5(3) of the GST Act provides that this section has effect despite section 11-5, which is about what is a creditable acquisition.
Definition of second-hand goods
It is necessary to determine whether second-hand jewellery to be purchased by you will constitute second-hand goods.
Section 195-1 of the GST Act defines 'second-hand goods' as:
second-hand goods does not include:
(a) precious metal; or
(b) 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; or
(c) animals or plants.
The term 'precious metal' is defined in section 195-1 of the GST Act as:
precious metal means:
(a) gold (in an investment form) of at least 99.5% fineness; or
(b) silver (in an investment form) of at least 99.9% fineness; or
(c) platinum (in an investment form) of at least 99% fineness; or
(d) any other substance (in an investment form) specified in the regulations of a particular fineness specified in the regulations.
Goods and Services Tax Ruling GSTR 2003/10 (GSTR 2003/10) refers to what is 'precious metal' for the purposes of GST. Paragraphs 10 - 12 of GSTR 2003/10 state:
10. To be precious metal, a thing must be the metal gold, silver, or platinum of specified fineness, or a substance listed in the regulations. The gold, silver, platinum or other substance must also be in an investment form.
The metal gold, silver or platinum
11. To be the metal gold, silver or platinum, the item must have the character of the metal rather than the character of a thing made from the metal. Items such as jewellery that happen to be made of gold, silver or platinum are not gold, silver or platinum for the purposes of the definition of precious metal in the GST Act. They no longer have the character of the metal gold, silver or platinum. They have the character of jewellery made from gold, silver or platinum. They are therefore not precious metal for the purposes of the GST Act.
12. A factor that can point to whether something has lost its character as the metal gold, silver or platinum is whether it is traded at a price that is determined by reference to the prevailing spot price for the metal. If something is not usually traded at a price determined by reference to the prevailing spot price of its metal content it is not being traded for its metal value only. This suggests that it does not have the character of the relevant metal. It has another character….
We consider that the second-hand jewellery to be purchased by you will not satisfy the definition of precious metal for the purposes of paragraph (a) of the definition of second-hand goods.
As per paragraph (b) of the definition of second-hand goods, if the jewellery contained gold and silver of the required fineness, that amount of gold and silver will be treated as precious metal irrespective of their form. Therefore, that amount of gold and silver will not be second-hand goods.
As per the facts, a proportion of the second-hand jewellery to be purchased by you could be treated as second-hand goods for GST purposes.
Manufacture
As per the facts, you will acquire the second-hand jewellery for the purpose of refining and converting them into gold and silver bullion bars of the required fineness to be treated as precious metal. It requires a process of manufacture.
The term 'manufacture' is not defined in the GST Act. The Macquarie Dictionary defines it as 'the making of anything, to make in any manner, to work up material into form for use etc'. Therefore, you will acquire jewellery for a manufacturing process.
Under subsection 66-5(1) of the GST Act, the acquisition of second-hand jewellery from persons not registered for GST for the purpose of sale or exchange in the ordinary course of business could be a creditable acquisition. However, acquisitions of such goods from persons not registered for GST for the purpose of manufacture in the ordinary course of business, will not be a creditable acquisition. Therefore, you will not be entitled to claim any input tax credits on such acquisitions.
Decision 2
Section 38-385 of the GST Act provides that a supply of precious metal is GST-free:
(a) if it is the first supply of that precious metal after its refining by or on behalf of the supplier; and
(b) the entity that refined the precious metal is a refiner of precious metal; and
(c) the recipient of the supply is a dealer in precious metal.
In your case, you retained the titles to the second-hand jewellery until they were refined into precious metal by the refiner on your behalf. When you sell the refined gold and silver as precious metal to the refinery, it is the first supply after its refining and paragraph 38-385(a) of the GST Act will be satisfied.
Section 195-1 of the GST Act defines a refiner of precious metal as an entity that satisfies the Commissioner that it regularly converts or refines precious metal in carrying on its enterprise. Therefore, if your refiner satisfies this definition, paragraph 38-385(b) of the GST Act will be satisfied.
Section 195-1 of the GST Act defines a dealer in precious metal as an entity that satisfies the Commissioner that a principal part of carrying on its enterprise is the regular supply and acquisition of precious metal.
Accordingly, if you sell your precious metal immediately after its refining to the refiner, who satisfies the definition of a refiner of precious metals and dealer in precious metals, under section 38-325 of the GST Act, the supply will be a GST-free supply.
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