Hi, i,m thinking about buying five one kg silver bars. I,m will use borrowed money from an allready set up "investment" account, which I have allready used to buy some shares. My questions are; - will the interest on the money that i borrow be tax a deduction? - and does the tax rules regarding the 12 month holding time and after that its less tax apply to silver? I am a first time silver investor and don,t want any tax problems. I,ve been looking at ABC bullion and some others in Sydney for my supply. Thanks for any advice. Cheers Mick
There will be various polarised views from this site, and I would suggest that you seek the advice of a tax lawyer (not accountant), who knows the actual law and it's loopholes. By the way, welcome.
Well the law regards tax will be pretty specific, the polarisation would come from elsewhere and he did not ask about that. Unfortunately i am unable to assist with this question. Hang around, you should get some answers within 24 hrs and yeah, welcome to the Forum
Interest on loans is tax deductible if you are purchasing an income producing asset (ie shares that pay dividends, or rental property) or for the purposes of engaging in an activity to produce income (ie, when a business borrows money). Silver does not produce income (other than the possibility of a capital gain when it is sold) and so the interest on the loan will not be tax deductible.
I would have imagined that the interest could be deducted from the capital gains made but that appears incorrect from what others have said.
It actually depends - if you are purchasing with the intention of making a profit, are systematic about the process, keep accurate records (there are a few other factors) then any income is not capital gains but revenue (personal services income - PSI). Interest on loans to earn this income would be deductible against the revenue from sales of silver but not against other salary and wage income. Your trading in metals would be isolated as a business - you would then have all of the other accounting issues with valuation of trading stock etc etc. If you make a loss from the metals trading then it may be possible to offset this loss against your other income but only in certain circumstances (must satisfy the non-commercial business loss provisions). On the other hand if you have purchased an asset (i.e. a lump of silver) and sell this for a gain in 3 years time then any gains are probably capital in nature (mere realisation of a capital asset). In this case the 50% CGT discount would apply (if you are eligible) and I think you'll find any interest paid on purchasing the asset will add to the cost base of the asset (i.e. reduce your capital gain). From memory the interest would form part of the 3rd element of the cost of the asset. Hope this helps.
thanks for the replies. It's interesting to see the divided veiws. I thought that it would be a cut and dried siutation, so to speak. Me thinks some arn't paying on CGT, and thats none of my business. But I thought that through all the records and stamped bullion and having to show ID for purchase and so on, that the tax man would catch on. But then the penny drops, If I didn,t buy 1 kg bars and keep smaller portions, say 10oz and sell them off in smaller quantities at a late date, then I could fly under the radar. am I on to something here? Mick
Hypothetically speaking, yes, cash sales of small amounts would be very difficult for anyone to track. If someone were to do that. Boating accidents are a surprisingly more common occurrence than people making small cash sales though.
It is basically cut and dried but there are several sets of rules - one for normal investors, one for traders. I assumed you weren't a trader or you probably wouldn't be asking the question. For normal investors interest on a loan for a non-income producing investment gets added onto the cost base for the asset, so it's effectively a tax deduction when you sell, rather than one you can claim every year like you would for a share margin loan etc.
yes Dwayne , thats right , I,m an average investor, a first time silver investor, and it's interesting to me, and this is a great site. Well you helped me out there, thank you. Big A.D. "Boating accidents are a surprisingly more common occurrence than people making small cash sales though." you lost me on that one buddy. and yes I see your point about trading in smaller quaitities. But it would be good to know the dollar point of the bullion dealers , when they have to give your trading info to the t-t-ta-taxman. I have sold hundreds of kgs of stainless steel scrap to the scrap yards, and from memory its $350 of scrap value per/week and above it is reported to the taxman, and it's ID. time.
Its a bit of an in-joke here about the taxman's difficulty in proving you sold your silver rather than losing it in an accident (if you were to claim that's the reason for you no longer having it should anyone ask). If you're not just looking to pick up a few coins here and there as a hobby and intend on treating precious metals as a serious investment, you really should keep proper records and pay any tax that comes due. The benefit of smaller sized bars or coins isn't just that you can offload them quietly, but that you can offload them easily. There are plenty of people out there (and a lot on the forum) who have enough cash to buy a 10oz bar. 100oz bar? Not so many.
ok I get that. yeah I think i'll take the correct tax route anyway, just throughing around some ideas. But I will proberly change 5 x 1 kgs to 4 x1 kgs and some 10oz bars.
