Sunday, 17 May 2015

Do I have to pay tax on that?

I thought I might spend some time on the subject of tax on precious metals, as it affects everyone who has purchased them in some way. 

Disclaimer: I am not a tax consultant or accountant, and the opinions given in this article are my own, you should discuss your own tax situation with an accountant.

I regularly get asked, "Do I have to pay tax on any profit I make in PM's?" - my answer is always..
 It depends.  It depends on the purpose of your purchase and whether your trading patterns support it.

This weekend the Government released Budget details of the tightening for tax purposes the property investment market, which apart form creating new disclosure requirements for foreigners, also cleared up the old  ambiguous "intent based" system and replaced it with a clear - hold the property for 2 years or pay tax on the price appreciation. This is not a capital gains tax, rather a tax on income, The IRD views trading in real-estate  as a taxable activity, if you buy a property to rent, then the rental would become the taxable activity

This got me really thinking about precious metals and tax, how would the IRD treat a holding of gold for tax purposes? To the best of my knowledge, the test as to whether you would be liable to pay tax or not, would be "intent based" that is to say, what was your reason for buying gold and silver in the first place? 

In my opinion there are only two reasons for people buying precious metals;
  1. To make a profit
  2. As an insurance against a future financial disaster 
It is really important to understand which camp you belong to, as it affects not only your potential tax obligations, but how you perceive price rises and falls. If you are the type of investor that purchased primarily for a profit, falling prices would likely have made you anxious and wonder if you had made the right decision. On the other hand if your primary reason for buying was long term wealth protection, you may not concern yourself too much about a price fall, and may even consider adding to your "insurance".

As a person who is a "precious metals professional" the IRD's tax position on my precious metals trading is clear, the IRD deems me to be involved in a taxable activity, regardless of whether I buy for my own account.

 The position of non-professionals requires more consideration. Unlike property, there is very little paperwork required to buy and sell PM's, and Precious Metals Dealers currently have  no disclosure obligations to any agencies. This would mean the only plausible way for "intent"to be determined  would be your trading history, and any notes that you may have made regarding your trading activities. The advice I offer to clients that ask questions on taxation is, be very clear to diarise your intent if you are acquiring metals for passive wealth accumulation, and take care not to actively trade, as your tax position can change. The second thing I say is every ones tax position can be different, you should discuss this matter with your accountant  

I'm sure all our clients are wealth accumulators, but that is not to say a explosive upward movement in the precious metals price would be unappreciated.

until next time 



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