Application of s 38-385 to ‘precious metal’ refined from scrap (ATO internal paper by Gordon Brysland, 27 November 2013), with an earlier ATO GST advice letter (Deputy Commissioner Rick Matthews), released under the Freedom of Information Act 1982

20. If, as asserted by the ATO this morning, there is only one first supply with any gold material this means that it is necessary to trace gold at, an atomic level, to work out whether the material has been previously supplied as “precious metal”. With a fungible commodity like gold or silver this is impossible.

21. Even if the recycled material represents as little as 1% of the completed product it would mean that the “precious metal” is not GST-free even though 99% of it has not gone into consumption as precious metal before (i.e. it had come from a mine). With respect, it cannot work that way. At the end of the representations (at [23-24]), further views are put regarding how s 38-385 applies –

23. There is nothing here that suggests that the exemption applies one time only to the raw material when it comes out of the ground or that contamination of the gold or silver with a minute amount of recycled material will deny the exemption. The amendment to insert the words “, or on behalf of,” in s.38-385 was to ensure that the exemption would apply to miners who retained title to that raw ce 2 material and who had their material processed for them by a tolling operation so that they can make ffi 98 the first supply to a dealer. There is no suggestion that this amendment was directed at denying GST- free treatment to “precious metal” as defined that has been produced by refining recycled material. O 1

24. In the case of AGR Joint Venture and Commissioner of Taxation 2007 ATC 2692 President Downes and Senior Member Sweidan said that they were obliged to apply the GST law in a practical and n ct commonsense way avoiding interpretations that are unduly technical and overly meticulous (at [32]). To suggest that the exemption provided by s.38-385 is denied if “precious metal” contains any recycled tio I A material is counter intuitive, not supported the legislation and contrary to the principles identified by the AAT. Furthermore, this interpretation would be contrary to industry practice where, perhaps more than any other industry, material is recycled. xa O Further angles Ta r F At the PHU, the treatment of ‘precious metal’ under the Fightback Proposal in the Cole Report43 and under the old sales tax law were raised. While neither of these factors, whatever they may show can influence what the words of s 38-385 mean, I will deal with each for completeness. n de Chapter 41 of the Cole Report proposed that fine metal be zero-rated if supplied by a refiner to a lia n dealer, it is the first supply after refinement and it is to be used as an investment. The term ‘refiner’ was to be defined to include fine metal producers where metal ores are refined for them by ra U the physical refiners without the passing of title 44. The proposal generally ‘borrows from the New Zealand experience’, it was said45. No mention is made specifically of refining from scrap metal st ed and the whole of the Cole Report discussion is in terms of ore and doré being refined. In the time available, I have not been able to consider how newly refined ‘precious metal’ is dealt with in NZ 46. Au as So far as the old sales tax law is concerned, indications are that sales following subsequent refining of gold ‘from ores, jewellers’ floor sweepings, scrap gold and direct from the Mint’ were exempt47. e el R Gordon Brysland 27 November 2013 43 Cole Report of 14 December 1992 by the GST Planning & Co-ordination Office to the Leader of the Opposition. 44 cf Principle 7 in the Eight Precious Metal Principles agreed by the ATO with industry. 45 Cole Report (at [41 4, 41 4.2]). 46 s 11(1)(n) of the Goods and Services Tax Act 1985, McKenzie GST- A Practical Guide (at 34 [¶202], 55 [¶307]). 47 Australian Sales Tax 1984 (at 116 [595-598]). 6 6 <!-- page break --> s38 ce 2 ffi 98 O 1 n ct tio I A xa O Ta r F Questions asked Question 1 (a) If my business buys precious metal containing materials and metallurgically n de processes and refines them to provide a metal or alloy for sale, will I be able to claim input tax credits? lia n (b) will I be supplying the first supply of a precious metal after refining or second ra U and subsequent supplies of a precious metal after refining? (c) Further, to what extent (eg. Quantitative %) is defined by refining? Does this st ed include an alloyed mixture of almost pure precious metals such as is often the case for platinum group metals? Au as Question 2 In my case, I will be buying scrap materials from many small operators and e individuals. Not all will have ABN's. As I will be a purchase price setter, it appears el that for equality, I will have to quote two buy prices per unit. $X for those with no R ABN and $X + (0.1*X) for those with an ABN. Is this correct? Facts As provided You are a metallurgist who is investigating a precious metal recycling business. Answers to questions asked Question 1 (a) If my business buys precious metal containing materials and metallurgically processes and refines them to provide a metal or alloy for sale, will I be able to claim input tax credits? Yes if GST-free. No if Input Taxed. (b) will I be supplying the first supply of a precious metal after refining or second and subsequent supplies of a precious metal after refining? Second or 7 <!-- page break --> subsequent supply if purchased when it has already been refined. First supply when purchased without it ever being refined. (c) Further, to what extent (eg. Quantitative %) is defined by refining? Does this include an alloyed mixture of almost pure precious metals such as is often the case for platinum group metals? Precious metals for GST purposes is: • gold (in an investment form) of at least 99.5% fineness, • silver (in an investment form) of at least 99.9% fineness, • platinum (in an investment form) of at least 99% fineness and • any other substance (in an investment form) prescribed in the regulations. Question 2 ce 2 In my case, I will be buying scrap materials from many small operators and ffi 98 individuals. Not all will have ABN's. As I will be a purchase price setter, it appears that for equality, I will have to quote two buy prices per unit. $X for those with no O 1 ABN and $X + (0.1*X) for those with an ABN. Is this correct? No. n ct Reasons for our decision Question 1 tio I A (a) If my business buys precious metal containing materials and metallurgically processes and refines them to provide a metal or alloy for xa O sale, will I be able to claim input tax credits? Ta r F A supply of precious metal is GST-free in accordance with section 38-385 of A New Tax System (Goods and Services Tax) Act 1999 ('the GST Act') if; n de (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 lia n (c) the recipient of the supply is a dealer in precious metal. ra U A refiner of precious metal means an entity that satisfies the Commissioner that it st ed regularly converts or refines precious metal in carrying on its enterprise. Au as If it is the case that the supply of precious metal is GST-free, you do not "charge" GST on the supply but you are entitled to input tax credits for anything acquired for e use in your enterprise that you have paid GST on. el A dealer is an entity where the principle part of carrying on the enterprise is the R regular supply and acquisition of precious metal. If the supply of precious metal does not fall under the requirements of being GST- free, then a supply of precious metal from a dealer is input taxed in accordance with section 40-100 of the GST Act. No GST is payable and no input tax credits can be claimed for anything acquired to make that supply. (b) will I be supplying the first supply of a precious metal after refining or second and subsequent supplies of a precious metal after refining? If you are buying precious metals that have already been refined and then you refine them to provide a metal or alloy for sale, then you will be supplying the second or 8 <!-- page break --> subsequent supply of the precious metal. Therefore, it will be input taxed. If when buying precious metal that has not be refined, then it will be GST-free. (c) Further, to what extent (eg. Quantitative %) is defined by refining? Does this include an alloyed mixture of almost pure precious metals such as is often the case for platinum group metals? The following are considered to be precious metals for GST purposes: • gold (in an investment form) of at least 99.5% fineness, • silver (in an investment form) of at least 99.9% fineness, • platinum (in an investment form) of at least 99% fineness and • any other substance (in an investment form) prescribed in the regulations. ce 2 Investment form means precious metal sold in a coin, wafer, bar or other tradeable ffi 98 form which has an internationally accepted hallmark. In the case of gold, this means a hallmark that has been approved by the London Bullion market and means that the O 1 gold can be traded on the international bullion market. A dealer who buys gold that is not in an investment form is not a dealer in precious metals. The requirement lies in n ct the form of the metal, not the purpose of the acquisition. Tradability on financial markets is crucial factor. tio I A Precious metal supplies you make to customers will only be input taxed if in xa O investment form, otherwise it will be subject to GST. Supplies of precious metal to you will only be input taxed if you buy it from a registered precious metal dealer in an Ta r F investment form. All other supplies of metals (gold alloyed with other metals, and scrap metal) will be n de subject to GST. Therefore input tax credits may be claimed, if registered for GST. lia n Question 2 ra U In my case, I will be buying scrap materials from many small operators and individuals. Not all will have ABN's. As I will be a purchase price setter, it st ed appears that for equality, I will have to quote two buy prices per unit. $X for those with no ABN and $X + (0.1*X) for those with an ABN. Is this correct? Au as Section 12-190 in Schedule 1, Part 2-5 of the Taxation Administration Act 1953 (‘TA e Act’) provides for an amount to be withheld from any payment made to another entity el (the supplier) for the supply of goods or services in the course of an enterprise where that entity does not provide an ABN on their invoice or some other document relating R to the supply. The amount withheld will be at the top marginal rate plus Medicare levy (currently at 48.5%). There are exceptions as to when this withholding event will apply. An amount is not required to be withheld under this provision in the following circumstances: • the payer is an individual and the payment is wholly of a private or domestic nature for the payer ; • the payment does not exceed $50 or such higher amount as is specified in regulations in force for the purposes of subsection 29-80(1) of the GST Act; • the whole of the payment is exempt income of the supplier; • the supply is made in the course or furtherance of an activity or series of activities, done as a member of a local governing body established by or under a State law or Territory law; 9 <!-- page break --> • the payer already must withhold from the payment because they are an investment body paying an amount for which no Tax File Number (TFN) has been quoted [s12-190(5)]; or • the payee (supplier) is an individual and has given the payer a written statement to the effect that the supply is private or domestic in nature, or relates to a hobby, and the payer has no reasonable grounds to believe that the statement is false or misleading in a material particular. Where the supplier has made the supply in the course of an enterprise, and has not quoted an ABN on an invoice or some other document relating to that supply, then you are required to withhold tax from the payment at the top marginal rate plus the Medicare levy (currently 48.5%), unless one of the above exceptions apply. For example, if your entity buys a supply for $1000 and the enterprise you brought it ce 2 from does not quote their ABN on their tax invoice, then you are required to withhold ffi 98 48.5% of the $1000 payment, ie $485. If a ABN is quoted, then you pay them the whole $1000. O 1 Where the supplier has not made the supply in the course of an enterprise, you are not n ct required to withhold under this provision. If the supplier is an individual and the supply is private or domestic in nature, or relates to a hobby or private recreational tio I A pursuit, they must give you a written statement to that effect. You do not withhold in these circumstances unless you have reasonable grounds to believe that the statement xa O is false or misleading in a material particular. Ta r F For more information, I refer you to the Tax Fact Sheet; Withholding when an ABN is not quoted that is available on Australian Taxation Office website n de www.taxreform.ato.gov.au. Although this opinion is not legally binding on the Commissioner of Taxation, it is lia n our policy to stand by the advice we give unless there is a change in the law, the ra U factual situation changes or our opinion is shown to be incorrect following a decision of a Court or a Tribunal. The advice given is subject to this necessary qualification. st ed Should you have any further enquiries on this matter please contact Kelly Pope on 07 Au as 3213 38634 e el Yours faithfully R Rick Matthews DEPUTY COMMISSIONER OF TAXATION Goods and Services Tax 10 <!-- page break -->