Australia Cracks Down On Gold Industry Tax Fraud

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By Murray Griffin

The Australian government March 31 announced a crack-down on a tax scam in the gold trading industry, with new legislation to apply retrospectively from April 1.

The government legislation will make mandatory an approach to paying goods and services tax, or GST, that the Australian Taxation Office has—since January—encouraged the gold industry to adopt on a voluntary basis.

To make sure fraudulent activity doesn’t simply shift from gold to other metals, the changes will apply to all precious metals, said Kelly O’Dwyer, minister for revenue and financial services.

“These changes will be legislated as soon as possible,” O’Dwyer said.

The crack-down will be implemented by reversing arrangements for remitting GST, so that those buying precious metals must remit and report it, not those selling them.

Threshold Exemption

Also effective from April 1, 2017, goods containing gold, silver or platinum above a threshold level will no longer fall within the definition of second-hand goods.

The ATO has, for some time, had concerns about tax fraud involving gold bullion transactions, with an ATO official Jan. 31 telling a webinar on its voluntary version of the GST payment arrangement that the industry was “not in a good place.”

“We have got a lot of concerns,” the ATO spokesman said.

The concerns relate to a scam that rests on the fact that GST doesn’t apply when someone buys gold bullion, the high-grade, tradable form of the metal.

But GST is applied when gold scrap is sold.

That means buying bullion, melting it into scrap and selling it entitles the person or entity that arranged the melting to charge GST when on-selling it.

Technically the GST should be remitted to the ATO, but in the real world, that often hasn’t happened.

Furthermore, the buyers of the melted gold can claim GST credits and then simply recycle it back into bullion, creating an “unvirtuous circle” in which GST payments never go to the ATO, while GST credits are repeatedly claimed.

As the Serious Financial Crime Taskforce said in an October 2016 bulletin, “we believe there are groups or networks of industry participants, including refiners, bullion dealers, gold kiosks, dealers and buyers within established supply chains involved in gold recycling (or carousel type) arrangements, seeking to exploit the GST rules in relation to precious metals.”

“These artificial arrangements are established to obtain a benefit from the tax system of which there is no entitlement and are tax crime,” it said.

The new “reverse-charge” GST arrangements prevent a mischievous seller from keeping the GST component when they sell gold, because the buyer will remit it to the ATO and sellers will never receive it.

Legitimate Players Welcome Mandatory Move

The government’s plan to convert the voluntary arrangement into a mandatory scheme is likely to be welcomed by legitimate participants in the gold trading industry.

After the Jan. 31 webinar, an ATO spokesperson Feb. 1 told Bloomberg BNA that many of those involved in the industry had expressed concern that the voluntary reverse charge arrangement might not be taken up by all industry participants.

Switching to a mandatory regime will also simplify arrangements for industry participants, an ATO spokesperson said March 31 by email.

Businesses can now report the reverse-charged transactions directly on their Business Activity Statements without having to complete voluntary reverse-charge worksheets, the spokesperson told Bloomberg BNA.

To contact the reporter on this story: Murray Griffin in Melbourne at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj in London at psukhraj@bna.com

For More Information

ATO information on the changes is available at http://src.bna.com/nwQ.

An ATO Draft Goods and Services Tax Determination (GSTD 2017/D1) 'Goods and services tax: what is excluded from being second-hand goods by paragraph (b) of the definition of that term in Division 195 of the A New Tax System (Goods and Services Tax) Act 1999?' is available at http://src.bna.com/nwR.

The October 2016 bulletin from the Serious Financial Crime Task Force is available at http://src.bna.com/nwS.

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