This is a post in response to this post here - http://forums.silverstackers.com/message-402163.html#p402163 Why has Perth Mint not thought about releasing a bullion Sovereign every year instead of the current range of Mass overpriced shite that no one wants. Is there any legal reason we know about and why they do not do it. I know for one this would be my #1 Stacked coin if it was, I realise the Nuggets are the Australian equivalent now, but Man bring a Sovereign and Half Sovereign into the range and I think we would have a winner. Comments ?
OK, I should have been more specific. Are there any mints in the world that currently produce bullion sovereigns THAT SELL AS A FUNCTION OF SPOT.
Ah, then yes: the Royal Mint in the UK. Nobody else makes (new) bullion sovereigns and sells them at bullion prices.
Ouch. Royal mint bullion sovereign = GBP379 = AUD582. That's a fair premium to pay over spot of AUD394.
A sovereign is only 22K gold so would attract 10% GST in Australia, as opposed to investment grade bullion which attracts no GST.
The Royal Mint do the same thing that the Perth Mint do and sell some of their normal bullion products with some additional packaging at a huge mark up (like the PM's UNC carded 1oz Koala for $57.50). Standard bullion sovereigns sell for ~100 GBP less through dealers (so about 8% over spot).
I doubt they would be able to be produced competively - it would be because of the GST. A second hand bullion dealer can sell a sovereign for less than 10% over spot, because they can claim an input tax credit on the purchase, lowering the cost price to below spot. New bullion sovereigns wouldn't attract the same input credit advantages (as far as I'm aware), and would have to be marked up 10% over the spot price plus premium. So a wholesale price of spot plus 2-4% would become spot plus ~13% before any dealer margin was added. Wouldn't be able to compete with normal 1/4oz bullion coins. Besides, who would buy new QEII sovs when there are so many QV, KGV etc type sovereigns available with historical cool factor. Much nicer to see the definition of investment gold for tax purposes expanded to cover world coins of .900 fineness or higher - so sovereigns, Krugerrands, American Gold Eagles, Britannias and many of the European gold coins that trade overseas as bullion could be traded tax-free here. Crazy that the world's definitive 1oz bullion coin (Krugerrand) is subject to a consumption tax in Australia. Might be a bit of a backlash from the scrap industry though as there are significant revenue advantages from the ability to claim input tax credits on "scrap" gold purchases such as these coins. Buy at spot, get a 10% input credit from the government, and either refine them or export them GST free.
I've wondered if it'd be worth whining about it. I mean, 999 gold and silver is GST free. In large part I suspect because it was such a small insignificant "barbarous relic" back when the GST was introduced. So little thought went into it they decided that 22ct was jewellery grade. If you were to walk into 10'000 jewellery stores across Australia you'd be lucky to see one 22ct piece of jewellery (I won't count Sovereign pendants / rings). How the ATO can say that it's jewellery grade is beyond me. But what I'm saying is if someone was to kick up a stink then there's the risk that 999 would become a taxable commodity. I think just let sleeping dogs lie.
The upside however would be a country with a tax system that is friendly towards the precious metals trade. Given our proximity to Asia and our distance from everywhere with nasty stuff going on, developing a pro-precious metals industry that goes beyond just digging them out of the ground would be a good thing.
And we say "Uh, because Europe probably isn't the best place to be getting economic advice about tax given that half the countries over there are insolvent?"
I would say the above arrangement is already friendly to the industry for those businesses that rely on a large turnover of scrap.
Well yeah, but it's only "friendly" in that it's currently propped up by a tax break. There isn't necessarily anything wrong with giving tax breaks for industries you're trying to help develop and expand but buying here at spot, claiming a tax credit and then selling overseas for spot isn't so much "developing an industry" as it is "cashing in on a loophole". There are only really a few pieces of legislation involved and they're broken. Simple fix: 1) Classify palladium with a purity of 995 or higher as a precious metal in line with international standards (ISO/LBMA, etc) 2) Amend "in an investment form" to include "items that currently are or once were legal tender in Australia or another country and which are traded through a function of the prevailing spot price". That covers everything us investors would consider an investment worthy bullion product and leaves only jewellery and other sources of scrap: Old X-Rays? No, not current or former legal tender. Broken necklace at spot? No, not current or former legal tender. KGV sovereign at spot plus $30? Yes, legal tender trading with spot KGV sovereign at $10,000? No, legal tender but not trading with spot. Krugerrand at spot plus 3%? Yes, legal tender trading with spot. U.S. 40% junk at spot? Yes, legal tender trading with spot. PAMP palladium bar? Yes, meets form and purity requirements. Palladium dental scrap? No, does not meet form or purity requirements. When I say we should be trying to develop a trading/financial services industry based on bullion what I'm really saying is one the one hand we're experts in gold mining but on the other hand we sound like idiots trying to explain to foreigners that sovereigns and krugerrands aren't "bullion" as far as our taxman is concerned. Even Europe's VAT on silver has more logic to it than our tax laws.
You are dreaming. There is no way the Govt is changing the GST Act as making one change for one industry will open up a can a worms of a whole lot of industries where (just like in precious metals) the original drafting has flaws, plus a lot of interest groups as well. The pollies don't see any benefit in creating a whole lot of disputes for what pay off? We are stuck with it. As to the scrap "loophole" the ATO has powers to go after people who are basically ripping off the taxpayer. Anyone doing that I think is playing a dangerous game.
The issue over GST is certainly valid, however don't the dealers buy GST free from PM anyway as a credit at least ? it is only the customer that takes the GST hit. Already the second hand market attracts GST here in Australia for this coin anyway. So I don't see why this is an issue ? Or am I missing something. As for the Millions already out there with collector interest. Absolutely but 95% of the coins are not even collector grade or interest. Only from a typeset etc... There will be a new demand created and with each year comes varied productions, which will create a new demand. I suppose I just have a real liking to the coin and the history and it seems that the Proof options are too pricey. With a bullion release and a Proof release you have your tier customers and new markets. Who knows maybe one day
GST on a new coin will result in a higher price than a second hand coin. At some point GST gets added to the gold - in the case of a new coin, no input credit is available to offset it. It's on top of the overall price. This would be reflected in the wholesale price. A second hand coin gets an input credit - private individuals selling them to dealers don't get the GST to claim back, so they don't need to get spot plus 10% to be happy, they just need to get paid spot. The "real" GST is only on the spread between the buy and sell, as the dealer gets to claim an input credit (even though the private seller didn't collect any GST).
