With Gold and Silver touching every day new highs, many independent jewellery stores are being visited by numerous customers on a daily basis with the hopes to cash in their unused gold and silver at these record levels. Although the actual price they fetch is dependent on numerous factors (Karat, Gram Weight, type of jewellery), the tax implications to both stores and consumers remain the same. The following is a summarized version of the proper tax treatment to be used by both consumers and storeowners that relate to the buy-back of Silver and Gold:
Consumers: Jewellery is an asset that may be considered “Listed Personal Property (LPP)” under the CRA and as a result sellers may have an obligation to declare any gains from the sale of the jewellery in the tax return. LPP is a special category of personal use property- items that you own for personal use and enjoyment. Such assets are classified as LPP; other common examples include art work, stamps and coins. The sale of LPP may result in a capital gain that is subject to taxation, if the LPP asset has appreciated enough in value.
To calculate the capital gain, you must first determine the adjusted cost base, which is the amount that you had paid to acquire the asset and then the proceeds which you received upon selling the asset. If the amount you paid is less than $1,000, your adjusted cost base (ACB – cost for tax purposes) is deemed to be $1,000. Similarly, if the cash you receive for your jewellery is less than $1,000, the proceeds you receive upon disposition are deemed to be $1,000 for tax purposes. Thus, anything that you sell for less than $1,000 is deemed to be a tax-free transaction for tax purposes. If however the jewellery had a cost of greater than $1,000 and it has appreciated even further resulting in a capital gain, than this transaction must be reported on Schedule 3 of your personal tax return. A capital loss from such a sale however is considered to be a “LPP loss” which can only be deducted against other LPP capital gains. Any unused LPP losses can be carried back three years or carried forward for seven years.
Suppliers: Unlike the situation where a jewellery or pawn broker may buy gold or silver coins from a customer, and have the obligation to issue a T5008 tax slip to the seller and report the sale to the CRA, with the buy-back of gold jewellery, there is NO such requirement. However, the CRA does require you to keep strong documentation relating to the buyback. Thus, I recommend that you issue each seller an “Acknowledgement of Receipt.” This acknowledgement will list the personal details of the Seller (Name, Address and Contact Information), a description of what was sold and the price paid for the goods. This would be the proper way to track the sale and provides CRA with evidence relating to the purchase. The goods can than either be resold in the store or melted down at a refinery.
GST/HST Impact: GST/HST is not charged by the seller on the sale of jewellery by a member of a public as the sale is considered a unique or one-time transaction by the CRA. The majority of members of the public are not in the business of selling jewellery for a profit and thus are typically not liable to remit GST/HST. Sellers will however charge GST/HST if they decide to resell the goods at a profit as it would be considered a normal and reoccurring activity in their day to day business. Thus, any goods that are bought from members of a public and resold to the public will be charged GST/HST.
Rishabh Khamesra is a Chartered Accountant in Toronto and a Certified Public Accountant from Illinois. He has dealt with transactions relating to the Jewellery Industry for a number of years and is well versed in dealing with many jewellery specific tax issues. He is a Partner of SRJCA Chartered Accountants and he can be reached directly at firstname.lastname@example.org