GST on Gold and Silver Bullion: Might the NZ Government Start Adding GST to Gold and Silver Bullion?

Estimated reading time: 6 minutes

No GST On Pure Gold and Silver Bullion

Currently in New Zealand there is no GST on fine (pure) gold and silver bullion. This includes gold and silver ingots, bars and coins.

The IRD website defines what “fine” means, in terms of the specific purities for each of the 3 precious metals:

Fine metal is any form of:

gold with a fineness of not less than 99.5%
silver with a fineness of not less than 99.9%
platinum with a fineness of not less than 99%.

The sale of fine metal by a dealer, or anyone importing fine metal is an exempt supply.

The exception is when newly-refined fine metal is supplied by a refiner to a dealer as an investment item, then it is a zero-rated supply

Source.

There is GST on Some Common and Well Known Gold Coins

Where the above purities are not reached, then bullion investment products can incur GST.

You should be aware that some well known gold coins do attract GST and are therefore 15% more expensive to purchase than other gold coins. Coins that incur GST include: American Gold Eagles, South African Gold Krugerrands and British Gold Sovereigns. As all these coins are only 91.67% pure or 22 carat gold:

The South African Krugerrand – 22 Carat or 91.67% Pure

The Krugerrand is minted from gold alloy that is 91.67% pure (22 carats). Its actual weight is 1.0909 troy ounces (33.93 g). The Krugerrand coin still contains one troy ounce (31.1035 g) of gold.

The American Gold Eagle – 22 Carat or 91.67% Pure

The 1oz Gold American Eagle coin contains a full troy ounce of gold. However in terms of purity it is only 91.67% gold (22 carat), 3% silver, and 5.33% copper. So when purchased in New Zealand an additional 15% GST is added to the price.

The British Gold Sovereign – 22 Carat or 91.67% Pure

Gold Sovereigns weigh 7.98 grams and are made of 22 carat gold or 91.67% pure. Therefore a gold sovereign contains 7.315 grams or 0.2353544 troy ounces of pure gold. i.e. they contain less than a quarter of an ounce of gold.

The History of the Rules Covering GST on Precious Metals

On the topic of GST, here’s an interesting question from a reader:

Would the NZ Government start adding GST to gold bullion anytime soon as I understand it is not applied at the moment?

Investment grade (fine) gold and silver have been GST exempt since GST was first introduced. However there was an amendment made which allowed this exemption, not long before GST was actually introduced (Goods and Services Tax Amendment Act 1986). This amendment was the result of industry feedback.

This paper from the IRD explains the specifics.

As noted already:

Fine metal is any form of:

· gold with a fineness of not less than 99.5%

· silver with a fineness of not less than 99.9%

· platinum with a fineness of not less than 99%.

The paper mainly deals with GST on second hand goods and some rather complicated issues surrounding that. It makes good bedtime reading if you’re having trouble getting to sleep after the daylight savings time change!

Might the Rules Covering GST on Precious Metals be Changed?

Personally we doubt very much that the government would look to change the GST rules around fine gold or silver. Why?

Well, the IRD paper explains a number of the reasons why the GST exemption was introduced for gold/silver. These include:

…a number of concerns were raised about [the supply of gold being taxable], as a result of fine gold also being used for investment purposes.

4.5 A major concern was that the price of gold in New Zealand would increase when GST came into force on 1 October 1986 by 10% (the rate of GST at the time) over the internationally set price. This would produce a windfall gain for persons holding gold at this time (if not required to register for GST) as they would be able to sell their gold for this increased price (as a registered purchaser would receive an input tax credit for secondhand goods), but not return any GST. The person could take further advantage of this rule by acquiring gold before 1 October, including by importing additional gold, to take advantage of this potential windfall, at the expense of government revenue.

4.6 Other concerns included the mismatch in treatment with paper dealings in gold, which were arguably an exempt financial service, the risk that gold could be treated as “money”, and that taxing gold would create a tax incentive for investment gold to be exported or held offshore.

Source.

So if the exemption was removed, the same issues would exist today. So we’d say the key reasons above would still stand:

• The mismatch in treatment of paper gold which would be an exempt financial service. So there would be no GST on paper gold dealings, but there would be on physical gold dealings. That would be inconsistent
• Adding GST to gold would definitely incentivise investment gold to be exported or held offshore instead. Thereby damaging local businesses.
• And just like when GST was first introduced, if the government in the future removed the gold and silver GST exemption, then like the IRD says in 4.5, there would be a windfall gain to anyone who held and then sold later and who wasn’t GST registered. Which is most private holders of gold. Gifting windfall gains are not something the IRD likes to see.

So for these reasons we think it is very unlikely the government would remove the GST exemption on gold, silver and platinum. Of course, you can never say never. But it would seem unlikely to us.

For more on this topic see: Gold Purity and Silver Purity – A Complete Guide