Edited version of your written advice

Authorisation Number: 1012909918934

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This edited version has been found to be misleading or incorrect. It does not represent the ATO’s view of the relevant law.

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Date of advice: 19 November 2015

Ruling

Subject: GST and GST credit for purchase of second-hand jewellery

Question

Is the Australian entity (you) entitled to claim an input taxed credit (ITC) on the acquisitions of second-hand jewellery from individuals who are neither registered for goods and services tax (GST) nor required to be registered for GST?

Advice

Yes, you are entitled to claim an ITC on the acquisitions of second-hand jewellery from individuals who are neither registered for GST nor required to be registered for GST because your acquisitions are creditable acquisitions under section 66-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant fact

An Australian entity (you) is registered for GST. You acquire second-hand jewellery for the purpose of sale and do not undertake any manufacturing process in relation to the jewellery acquired.

You acquire second-hand 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 jewellery is confirmed when it is acquired. The jewellery acquired has a fineness of 99.5% or more.

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

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

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 66-5

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

Reasons for decisions

You are entitled to claim an input tax credit under Division 66 of the GST Act as you satisfy all the requirements in section 66-5 of the GST Act.

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.

You will make a creditable acquisition of the jewellery where the conditions in section 66-5 of the GST Act have been met.

Section 66-5 of the GST Act states:

(1) If you acquire *second-hand goods for the purposes 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.

(2) However, 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 the 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.

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

You acquire the previously owned jewellery from individuals (who are not registered for GST) for the purpose of sale in the ordinary course of your business and do not undertake any manufacturing process in relation to the jewellery acquired. Therefore the supply to you is not taxable. The supply to you was not by way of hire and you do not import any of the jewellery.

As you do not divide jewellery into two or more separate supplies prior to the subsequent supply, subdivision 66-B does not apply to the acquisition. Your subsequent supply will be a taxable supply.

What remains to be determined is whether the acquired jewellery constitutes second-hand goods for the purpose of section 66-5 of the GST Act.

The term 'second-hand goods' is defined in section 195-1 of the GST Act and takes its ordinary meaning but specific exclusions apply:

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.

We consider the jewellery to fall within the ordinary meaning of ‘second-hand’ goods.

Paragraph (a) of definition of second-hand goods

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 Goods and Services Tax: What is 'precious metal' for the purposes of GST? discusses what goods constitute precious metal under the definition in section 195-1of the GST Act.

Paragraph 10 of GSTR 2003/10 explains that to be precious metal, a thing must be the metal gold, silver, or platinum of specified fineness. The gold, silver, platinum must also be in an investment form.

According to paragraph 11 of GSTR 2003/10, to be the metal, gold, silver or platinum, the item must have 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 metals for the purposes of the GST Act.

As gold jewellery is not precious metal for the purposes of the definition of ‘precious metal in the GST Act, your jewellery is therefore 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 (b) of the definition of second-hand goods is to be interpreted in line with the definition of precious metal. Therefore paragraph (b) of the definition of second-hand goods can only apply to goods which satisfy the definition of precious metal except for the fact that they are not of the required fineness.

Therefore as precious metal is also defined as being in an investment form, the goods also have to be in an investment form, to fall within paragraph (b) of the definition of second-hand goods.

The term ‘investment form’ is not defined in the GST Act. The expression 'investment form' therefore takes its ordinary meaning from the context in which it is used. Paragraph 20 of GSTR 2003/10 provides the expression 'in an investment form' means the metal must be in a physical form that is capable of being traded on the international market for that metal by traders in that metal in that market. To be tradeable on the international bullion market, the metal must bear some mark or characteristic on its face accepted by the market as identifying and guaranteeing its fineness and quality.

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. Therefore the jewellery is not in an investment form.

In this instance, the jewellery is not excluded from being second-hand goods under paragraph (b) of the definition of second hand goods, as it is not a good in an investment form.

Summary

Your acquisitions of second hand jewellery are creditable acquisitions under section 66-5 of the GST Act as all the requirements in that section are satisfied. Accordingly, you are entitled to claim an ITC on these creditable acquisitions.