Example 1: Mixed metals – voluntary reverse charge
A jewellery manufacturer frequently supplies valuable metal goods that contain gold of varying fineness combined with varying amounts of low-value metals, such as copper, to a retail jewellery store. It would not be practical to distinguish which supplies fall above and below the 10% threshold.
In such a situation the jewellery manufacturer could enter into a written agreement with the purchaser of the goods to voluntarily reverse charge all their supplies. This would remove the need to apply the 10% threshold test on the individual metals supplied.
End of example
Example 2: Jewellery business-to-business reverse charge transaction
There may be circumstances when manufacturers, wholesalers and jewellers sell surplus or damaged stock to be refined. In these circumstances the jewellery may be sold for the value of its valuable metal content. In this scenario, as the jewellery is being sold for its valuable metal content, the price paid for the jewellery may be less than 110% of the value of the valuable metal and the reverse charge would apply.
End of example
Example 3: Jewellery business-to-business GST transaction (no reverse charge)
A manufacturer makes a piece of jewellery that has gold worth $200 at the current spot price for refined gold (for example, gold bullion) and silver worth $50 at its current spot price. The combined value of the valuable metal is $250 and therefore 110% of the value of the valuable metal is $275. The piece of jewellery is sold for $330 to a registered jewellery business. The market value of the goods on a GST exclusive basis is therefore $300.
The reverse charge does not apply to this business-to-business transaction as the price is greater than 110% of the valuable metal content. However, the manufacturer and registered jewellery business have the option to reverse charge these transactions.
End of example
Example 4: Damaged jewellery business-to-business reverse charge transaction
The above piece of jewellery is damaged prior to its sale. The manufacturer sells the jewellery to a local refiner who agrees to pay a price equal to 95% of the spot price for the gold and silver content. The refiner pays the manufacturer $237.50. As the price is less than $275, the reverse charge applies to the transaction. Any GST payable on the sale is accounted for by the refiner under the reverse charge.
End of example
Example 5: Supply chain – gold refiner to jewellery manufacturer (no reverse charge as supply is GST-free)
Gold X Pty Ltd refiner sells gold bullion (GST-free) to Scrappy Metals Pty Ltd (both registered for GST). Gold bullion that is of the required fineness meets the definition of a precious metal. Precious metals are not taxable supplies and are not subject to the reverse charge.
End of example
Example 6: Supply chain – jewellery manufacturer to jeweller (no reverse charge as did exceed 10% valuable metal threshold)
Scrappy Metals Pty Ltd is a gold manufacturer that makes jewellery.
Scrappy Metals Pty Ltd alters the precious metal into two 18-carat gold necklaces and sells these to Pretty things Pty Ltd (registered for GST) on 27 June 2017 for $1,798.00. The necklaces each contain four grams of gold at $30.16 per gram (spot price). The market value of the gold is $241.28.
The market value of the necklace exceeds the market value to its gold content by 645% (100% × (1,798 − 241.28) ÷ 241.28). The reverse charge is not required to be applied to this supply. However, Scrappy Metals Pty Ltd and Pretty things Pty Ltd businesses have the option to reverse charge these transactions.
End of example
Example 7: Supply chain – jeweller to public (no reverse charge and normal GST rules apply)
Pretty Things Pty Ltd sells one necklace to a member of the public. No reverse charge applies at this selling point as the reverse charge only applies to business to business transactions. The normal GST rules apply when selling to an individual and the sale price must include GST for any taxable sales. As the seller, Pretty Things Jeweller Pty Ltd must collect and remit GST payable on the sale.
End of example
Example 8: Supply chain – jeweller to gold refiner (reverse charge as did not exceed 10% valuable metal threshold)
Pretty Things Pty Ltd has several bracelets with broken clasps and damaged rings which have not sold to date. They decide to sell these items to Gold Rush Pty Ltd to be refined.
Pretty Things Pty Ltd has determined that on 30 June 2017 the spot price of the valuable metal content in these items is $3,890.
Gold Rush Refiner Pty Ltd pays $4,102 to purchase these items.
The market value of these items exceeds the market value to its valuable metal content by only 5.44% (100% × (4,102 − 3,890) ÷ 3,890) that is under the 10% value added threshold. The reverse charge is required to be applied to this supply.
End of example
Example 9: Supply chain – public to pawnbroker (no reverse charge and normal GST rules apply)
Monica (individual non-registered entity) pawned a gold clock with a market value of $460 to pawnbroker XYZ Pty Ltd.
No reverse charge applies at this point as the reverse charge law does not apply if you are buying and selling goods to members of the public (individual non-business entities).
End of example
Example 10: Supply chain – pawnbroker to refiner (reverse charge as did not exceed 10% valuable metal threshold)
Monica does not redeem the clock in the required amount of time and Pawnbroker XYZ Pty Ltd displays the clock for sale. There is no interest in this item from customers, and after some time XYZ Pty Ltd decides to sell the clock to gold refiner Gold X Pty Ltd for $560.
The gold content of this clock has been valued at $511.
The market value of these items exceeds the market value to its valuable metal content by 9.6% (100% × (560 − 511) ÷ 511).
This supply from Pawnbroker XYZ Pty Ltd to the refiner is subject to a reverse charge as the market value of the clock does not exceed the 10% valuable metal threshold.
End of example