VM 2017/D1 – ‘Goods and Services Tax: Valuable Metals Market Value Determination 2017’ – a draft determination of the s86-10(3) method by which taxpayers may determine the ‘market value’ of ‘Valuable Metals’ in goods supplied for the purposes of determining whether there is a s86-5 ‘reverse charge’ liability of the recipient of the goods

On 12 July 2017 (or thereabouts), the Commissioner issued as draft of the method by which an supplier and recipient of goods comprising ‘Valuable Metals’, or that had Valuable Metals included in them, could determine the market value of the Valuable Metal, and thus determine whether a reverse charge’ mechanism was imposed on the supply under s86-5 of the GST Act (where the recipient of the goods supplied has the liability for the GST). This is VM 2017/D1:Goods and Services Tax: Valuable Metals Market Value Determination 2017.

Under the recently enacted Div 86 of the GST Act: there is a reverse charge mechanism imposed on the supply of ‘Valuable Metals’ unless the market value, of the goods supplied, exceeds the market value of the Valuable Metal in the good(s), by 10%. This is the effect of s86-5 of the GST Act (see below), after following through the definition of ‘Valuable Metals Threshold’ (via s195) in s86-10.

A market value of the good(s) of more than 10% over the market value of the Valuable Metal in the goods avoids the reverse charge mechanism applying to things like a supply of antiques.

Section 86-10(2), in turn, allows the ‘market value’ of the Valuable Metal, in the goods supplied, to be determined either by its ordinary meaning or by any value, which the Commissioner has determined, by ‘legislative instrument’ (under ss(3) – see below also).

The 10% threshold above market value is the default percentage, but s86-10(4) allows the Commissioner to set another percentage – again by legislative instrument.

The Commissioner posted a draft of his proposed of the legislative instrument he proposes to make on the methods of by which taxpayers can determine the market value of Valuable Metals, for the purposes of s86-10(3).

The instrument provides that a supplier must use the weight of the Valuable Metal, times the ‘spot price’ for that metal, where:

1. Weight of valuable metal is the weight in troy ounces of the valuable metal in the good.
2. Spot price of valuable metal on the date of the supply is whichever of the following you choose:

a. one of the published rates for that date provided by an Australian entity recognised as a member of the London Bullion Market,

b. one of the published Australian rates for that date reported by the London Bullion Market Authority (LBMA), or

c. one of the published Australian rates for that date provided by a commercially recognised authoritative provider of spot price data.

[FJM; ATO website: Draft Determination; Explanatory Statement; GST Act; LTN 130, 12/7/17]

Extract from new s86-5

86-5   “Reverse charge” on supplies of goods consisting of valuable metal

(1)   The GST on a *taxable supply of goods is payable by the *recipient of the supply, and is not payable by the supplier, if:

(a) the goods consist wholly or partly of *valuable metal; and

(b) the recipient is *registered or *required to be registered; and

(c) either:

(i) at the time of the supply, the market value of the goods does not exceed the *valuable metal threshold; or

(ii) the supplier and the recipient agree, in writing, that the GST on the supply be payable by the recipient.

(2)   Subsection (1) does not apply to a *taxable supply of goods if the supply is in a class of supplies determined under subsection (3).

86-10   The valuable metal threshold

(1)   The market value of goods consisting wholly or partly of *valuable metal exceeds the valuable metal threshold at a time if, at that time:

(a) unless paragraph (b) applies – the market value of the goods exceeds the market value of the valuable metal in the goods by at least the specified percentage (see subsection (4)); or
(b) if the goods consist of goods ( separate goods ), each of which:

(i) consist wholly or partly of valuable metal; and

(ii) can be separately supplied;

the market value of each of the separate goods exceeds the market value of the valuable metal in those particular separate goods by at least the specified percentage.

Market value of goods and valuable metal

(2)   For the purposes of subsection (1), the market value of goods or *valuable metal in goods:

(a)    is to be worked out disregarding any amount of GST:

(i) that is payable on the supply of the goods or metal; or

(ii) if there is no supply of valuable metal – that would be payable if there were a supply of valuable metal; and

(b) either:

(i)   unless subparagraph (ii) applies – is the market value of the goods or metal within the ordinary meaning of the expression; or
(ii)   if the Commissioner has determined under subsection (3) one or more methods for working out the market value of goods or metal – the market value of the goods or metal worked out using any one of those methods.

(3)   The Commissioner may, by legislative instrument, determine one or more methods of working out the market value of goods or *valuable metal for the purposes of subparagraph (2)(b)(ii).

Specified percentage

(4)   For the purposes of subsection (1), the specified percentage is:

(a) if the Minister determines a percentage under subsection (5) – that percentage; or
(b) otherwise – 10%.

(5)   The Minister may, by legislative instrument, determine a percentage for the purposes of paragraph (4)(a).

Extract from Explanatory Memorandum

What is this instrument about

6. Division 86 of the GST Act requires that, under certain circumstances, the GST on a taxable supply of goods consisting wholly or partly of gold, silver or platinum is “reverse charged” so that the recipient of the supply is liable for the GST on the supply instead of the supplier.

7. However if the market value of the supply of goods exceeds the market value of any valuable metal contained in the goods by 10 percent or more at the time of the supply, the reverse charge may not apply. In these circumstances the supplier and the recipient can agree to voluntarily reverse charge the supply to avoid having to undertake the market value calculation.

8. The definition of “second-hand goods” in section 195-1 of the GST Act excludes goods to the extent that they consist of gold, silver or platinum unless the goods are “incidental valuable metal goods”. This term is defined in section 195-1 to include goods where the market value of the goods exceeds the market value of any valuable metal contained in the goods by 10 percent or more at the time of the acquisition.

9. In this instrument, the Commissioner sets out the method taxyayers must use to calculate the market value of valuable metal for the purposes of the valuable metal threshold test.

The Proposed Determination