Edited version of your written advice

Authorisation Number: 1012685064531

Ruling

Subject: GST and supply of bullion bars

Question 1

Will your supplies of precious metals, after their refinement, constitute the first supply of precious metal in accordance with paragraph 38-385(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, based on the information received your supplies of metals, after their refinement will constitute the first supply of that precious metal in accordance with paragraph 38-385(a) of the GST Act.

Question 2

If the answer to question 1 is yes, will your supplies of precious metals satisfy the other requirements of section 38-385 of the GST Act to make the supplies GST-free?

Answer

Based on the information received your supplies of precious metals will satisfy the other requirements of section 38-385 of the GST Act where the recipients of your supplies are dealers in precious metals as defined in section 195-1 of the GST Act. In this instance the supply of the precious metals will be GST-free under section 38-385 of the GST Act.

Where the recipients of your supplies are not dealers in precious metals as defined in section 195-1 of the GST Act, all the requirements in section 38-385 of the GST Act will not be satisfied. The supply of the precious metals will not be GST-free under that section. However, the supply of the precious metals to these recipients will be input taxed under section 40-100 of the GST Act.

Question 3

Will you be entitled to full input tax credits incurred through the business process in making the above supplies (example running costs of the business)?

Answer

As discussed in question 2, your supply of precious metals will be input taxed under section 40-100 of the GST Act and will not be GST-free under section 38-385 of the GST Act where all the requirements in section 38-385 of the GST Act are not satisfied.

Where your supply of precious metals is input taxed, the acquisitions you incurred for your business purposes (for example acquisition of metals and refiner's services) will not be for a creditable purpose under paragraph 11-15(2)(a) of the GST Act as they relate to making input taxed supplies. In this instance you will not be entitled to input tax credits for the acquisitions related to making the input taxed supplies because these acquisitions will not be creditable acquisitions under section 11-5 of the GST Act.

Where your supply of precious metals is GST-free under section 38-385 of the GST Act the acquisitions you incurred for your business purposes (for example acquisition of metals and refiner's services) will be creditable acquisitions under section 11-5 of the GST Act. In this instance you will be entitled to input tax credits for the acquisitions related to making the GST-free supplies.

If you are making input taxed and GST-free supplies you need to apportion the acquisitions that relate to making the two supplies.

Relevant facts

You are registered for the goods and services tax (GST.)

You will purchase precious metals in a variety of forms from businesses and entities who are registered for GST and GST will be included in the supplies made by these businesses and entities.

You will be in contact with refiners and you will send your precious metals to the refiner who will provide you with the best deal for the refinement of these metals. The metals are being refined on your behalf and you will retain the legal title of the metals until you sell them.

The refiner will refine the metals to a certain standard such that the refined metals will satisfy the definition of precious metals in section 195-1 of the GST Act. The refiner regularly converts or refines precious metal in carrying on their enterprises.

The precious metals will be in a physical form that can be traded on the international market. The metals will be converted into bullion bars and will be of investment grade. The precious metals will have the licenced refiner's name, weight and fineness stamped on them.

The fineness of the precious metals will be as in the definition of section 195-1 of the GST Act.

The precious metals will be sold to a variety of customers, for example dealers, investors, individuals, the public and so on

The sale price of the precious metals will be determined by reference to the spot price of the metals at the time they are traded.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 38-385

A New Tax System (Goods and Services Tax) Act 1999 Section 40-100

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decisions

Section 38-385 of the GST Act states:

A supply of *precious metal is GST-free if:

(a) 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.

(* denotes a term defined in section 195-1 of the GST Act)

Before we consider questions 1 and 2 we must first determine whether the metal bars that you will supply are precious metals for the purposes of the GST Act.

Are the precious bars previous metals?

Precious metal is defined in section 195-1 of the GST Act as follows:

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 (available at www.ato.gov.au) provides guidance on what is precious metal for the purposes of GST.

Paragraphs 22 and 34 to 36 of GSTR 2003/10 discuss when bars are traded in an investment form and state

22. Bars, wafers and bullion coins are the physical forms in which the metals gold, silver and platinum are traded on the international bullion market for those metals. These are therefore forms of those metals that are capable of being traded on the international bullion market.

34. Bars and wafers that are hallmarked with hallmarks listed in the ICGB bear an accepted mark as to their fineness and quality. The list of hallmarks in the ICGB is not exhaustive. There are other hallmarks, such as the ABC hallmark, that are accepted as guaranteeing fineness and quality.

35. Such bars and wafers are produced at varying weights. If they are in a form traded at prices determined by reference to the spot price, such bars and wafers are in an investment form. If so, and they are of gold, silver or platinum of the requisite fineness, they are precious metal for the purposes of the GST Act.

36. As an example, some small refiners in Australia make bars that are only traded in Australia. As noted at paragraph 22, bars are an internationally traded form of metal. If the bars produced by the refiner have a hallmark that is accepted in their market as guaranteeing the fineness and quality of the metal they will be in a tradeable form bearing an accepted mark or characteristic. If such bars are traded at a price determined by reference to the spot price they will be in an investment form.

You advised that the precious metals you will purchase from GST registered entities and will be refined into bullion bars by the refiner. The bullion bars will be stamped with the licence refiner's name, weight and fineness and the prices of the bullion bars will be determined by reference to the spot price at the time they are traded. In this instance the bullion bars will be in an investment form.

You also stated that the refiner will refine the metals to a certain standard such that the refined metals will satisfy the definition of precious metal in section 195-1 of the GST Act.

Accordingly, based on the above information the bullion bars that you will supply will be precious metals since they will satisfy the definition of precious metal in section 195-1 of the GST Act.

The next step is to consider questions 1 and 2.

Question 1

According to paragraph 38-385(a) of the GST Act the supply of the precious metal must be the first supply of that precious metal after its refining by, or on behalf of, the supplier.

Paragraph 7 of GSTR 2003/10 provides that the first supply of precious metal after its refining may be GST-free under section 38-385 of the GST Act and apart from transactions that fall within the ambit of section 38-385 of the GST Act, supplies of precious metals are input taxed under section 40-100 of the GST Act.

You will be in contact with refiners and you will send your precious metals to the refiner who will provide you with the best deal for the refinement of these metals.

The metals are being refined on your behalf and will be in the form of bullion bars which as discussed above are precious metal for GST purposes. You will retain legal title of the metals from the time you purchase them until you sell them.

As such, your supply of the metals after their refinement into a precious metal will be the first supply in accordance with paragraph 38-385(a) of the GST Act.

Question 2

Question 2 refers to the other requirements in paragraphs (b) and (c) of section 38-385 of the GST Act. We will now consider whether the requirements in these paragraphs are satisfied.

Paragraph 38-385(b) of the GST Act

To satisfy paragraph 38-385(b) of the GST Act, the entity that refined the precious metal has to be a refiner of precious metal.

Section 195-1 of the GST Act defines 'refiner of precious metal' as follows:

refiner of precious metal means an entity that satisfies the Commissioner that it regularly converts or refines *precious metal in *carrying on its *enterprise.

You advised that the refiner you will engage regularly converts or refines precious metal in carrying on its enterprise and it will refine the metals to a certain standard such that the refined metals will satisfy the definition of precious metals in section 195-1 of the GST Act. Based on this information, paragraph 38-385(b) of the GST Act is satisfied.

Paragraph 38-385(c) of the GST Act

The requirement in paragraph 38-385(c) of the GST Act is that the recipient of the supply is a dealer in precious metal.

Section 195-1 of the GST Act defines 'dealer in precious metal' as:

dealer in precious metal means an entity that satisfies the Commissioner that a principal part of *carrying on its *enterprise is the regular supply and acquisition of *precious metal.

You advised that your precious metal will be supplied to a variety of customers, for example dealers, investors, individuals, the public and so on.

Accordingly, where the recipients of your supplies are dealers in precious metal as defined in section 195-1 of the GST Act, the requirement in paragraph 38-385(c) of the GST Act will be satisfied.

Where the recipients are not dealers in precious metal (that is they do not carry on an enterprise that makes regular supply and acquisition of precious metal), the requirement in paragraph 38-385(c) of the GST Act is not satisfied. Consequently, your supply of precious metal will not be GST-free under section 38-385 of the GST Act. However, the supply may still not be subject to GST if the supply satisfies the requirement in section 40-100 of the GST Act.

Section 40-100 of the GST Act

Under section 40-100 of the GST Act a supply of precious metal is input taxed.

As discussed above, your supply of the bullion bars will be precious metals for GST purposes. Accordingly your supply of the bullion bars will be an input taxed supply under section 40-100 of the GST Act.

Summary

Based on the information received, your supply of metals after their refinement will satisfy the other requirements of section 38-385 of the GST Act where the recipients of your supplies are dealers in precious metals as defined in section 195-1 of the GST Act. Your supply in this instance will be GST-free under section 38-385 of the GST Act.

Where the recipients of your supplies are not dealers in precious metals as defined in section 195-1 of the GST Act, all the requirements in section 38-385 of the GST Act will not be satisfied and therefore the supply will not be GST-free under that section. However, your supply to these recipients will be input taxed under section 40-100 of the GST Act and no GST will be payable for the supply.

Question 3

Under section 11-20 of the GST Act, you are entitled to an input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act states:

 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.

 Subsection 11-15(1) of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

From the information received, your acquisitions of the precious metals and the refiner's services will satisfy the requirements in paragraphs 11-5(a) to (11-5(d) of the GST Act as:

a) you will acquire the metals and refiner's services in carrying on your business;

b) the requirement that the supply of the precious metals to you is a taxable supply will be satisfied as you advised that the suppliers are registered for GST and their price will include GST. Where the refiner is registered for GST your acquisition of their services will also satisfy the requirement in paragraph 11-5(b) of the GST Act;

c) you are liable to provide consideration for the supplies you acquire; and.

d) you are registered for GST.

However under subsection 11-15(2) of the GST Act you do not acquire the thing for a creditable purpose to the extent that:

a) the acquisition relates to making supplies that would be input taxed; or

b) the acquisition is of a private or domestic nature

As discussed in question 2, your supply of precious metals will be input taxed under section 40-100 of the GST Act and will not be GST-free under section 38-385 of the GST Act if all the requirements in section 38-385 of the GST Act are not satisfied.

Accordingly, where your supply of precious metals is input taxed your acquisitions (for example metals and refiner's services) will not be for a creditable purpose under paragraph 11-15(2)(a) of the GST Act because the acquisitions will relate to making supplies that will be input taxed. In this instance you will not be entitled to input tax credits for acquisitions related to making the input taxed supplies.

However, where you make creditable acquisitions through the business process in making your GST-free supplies, you will be entitled to input tax credits.

If you are making input taxed and GST-free supplies you need to apportion the acquisitions that relate to making the two supplies. Goods and Services Tax Ruling GSTR 2008/1 may be of assistance to you as it provides guidance on apportionment.