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SilverDoor

Capital Gains Tax on Certified Numismatics

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SilverDoor

I would love to hear from the experienced traders about their interpretation

of taxes for numismatics. A couple of questions follow with proposed answers:

 

1) Someone discovers a stack of uncertified Krugerrands in grandpa's attic

and decides to sell it. How is CGT calculated on the sale, provided that

no record of the original purchase exists?

 

2) Are all coins/medals that are certified by legitimate companies like NGC

or PCGS exempt from CGT, even if the certification just states

Brilliant Uncirculated?

 

3) What is required for a coin to be classified as a collectors item that is

free from CGT?

 

 

1) The base cost for the Krugerrands will be their value in Oct. 2001, according

to S A Coin - You will pay no taxes on your profits when you sell your rare coins in South Africa. The CGT will then be 13.3% of

the gains from Oct. 2001 that is above the annual exclusion of R30,000 according

to http://www.masthead.co.za/financiala...Feb%202012.pdf .

 

 

2&3) "Your personal-use assets such as clothes, jewellery, stamps, art works, antiques, collectible coins and other personal effects.

However, it excludes the following:

a. A coin of which the intrinsic value is mainly attributable to the material from which it has been minted or cast." - From South African Revenue Service - FAQs: Exclusion .

 

Furthermore:

"“asset” includes—(a) property of whatever nature, whether movable or immovable, corporeal or incorporeal, excluding any currency, but including any coin made mainly from gold or platinum;"

- From South African Revenue Service - Under Construction .

 

And:

"Personal use assets do not include—

(a) a coin made mainly from gold or platinum of which the market value is mainly attributable to the material from which it is minted or cast;"

- From South African Revenue Service - Under Construction .

 

On Capital Gains Tax (CGT) it is stated:

"Personal belongings (include)...coins and medallions (this does not apply to items like ...gold and silver coins)."

I do not know where they get those facts regarding silver coins, and I believe that they made an error

and should have it as 'gold and platinum coins', as mentioned in the SARS literature.

 

 

So from these definitions I ascertain that any currency is exempt from CGT, bar the

taxes applicable to Forex gains (which I know nothing about). But certainly currency

like the old silver R1's would be exempt, as well as possibly the 80% and 50% silver

Union coins.

 

Any silver coin or coin not made mainly of Gold or Platinum is exempt from CGT, when

that coin has a numismatic premium that values it above the spot price of its metal content.

 

Certified coins almost always have some premium above intrinsic metal value, so

any certification even on Gold and Platinum coins should be a strong argument

against CGT and to the fact that it is then a collectible coin.

 

Bullion bars are not mentioned, so for silver bullion not in coin form I do not know

what conclusions to draw. I think it has to be assumed that they would not be regarded

as personal use items, and would thus be CGT applicable.

 

These are my own interpretations from the available information and I welcome

any criticism or debate. Thank you.

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alloway65

Very useful post thank you.

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SilverDoor
As an investment option, they offer the advantage of being exempted from capital gains tax, since they are classified as collectibles. Profits from selling numismatic coins are taxed as ordinary income.

 

This is surprising, is the bold part correct given the following quote?

 

First introduced on 1 October 2001, capital gains tax is a portion of the net gain added to the taxpayer's taxable income from the increase in value of an asset that was disposed of for more than its base cost. The proportion of this net gain is added to the individual’s income tax (see normal tax).

 

So if one already adds the proportion of the net gain to taxable income, is that then added in addition to the "profits from selling numismatic coins", meaning income+=(1.0+CGT%)*profit?

 

Or is it a special ruling with numismatic coins that there is no CGT but that all of the profit is in fact going to be taxed? That seems counter-intuitive, because then one is at a huge disadvantage tax-wise if one invests in numismatic coins. Then the say 13.3% CGT becomes 100%, which leads me to believe that I am misunderstanding something.

 

I admit that I don't know a lot about the subject, but does that mean that profit on the sale of every personal asset counts towards one's taxable income?

 

And what about CGT-applicable coins like Krugerrands, does one then have to pay CGT and have the profit count towards one's personal taxable income?

Edited by SilverDoor

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jwither

How badly do you want to know the real answer? If you really want to know, I would advice you to either ask a tax accountant who does or look it up yourself. The two sources you cited in your second post seem to be potentially incomplete and possibly contradictory.

 

Living in the United States, I am not going to claim to know the SA tax code, but in my opinion, it should not be "rocket sciece" to understand it. I have studied the US tax code in the past (yes, academically) and though it has changed since I did, it now penalizes "collectibles" and bullion versus other "investments" such as company equities and bonds. From the sources you included, there apparently is also a difference in the treatment of asset classes in SA.

 

The only way to actually know is (presumably) to look at the tax code first followed by case law and regulatory pronouncements by the SA Revenue Service. This is how it works in the United States. In answering your question in the initial post, here is my opinion on how it would work in the United States to which I have added some common sense assumptions which anyone here can use as a starting point as they please:

 

If you find an asset (Krugerrands) "in the attic", the cost basis should be the value on the date you inherited it (if this applies since it came with the house) or zero if you otherwise"found it" because you paid nothing for it. (If you inherited it, you also need to consider the inheritance or estate tax, if SA has one.) The cost basis is subtracted from the sales price to calculate the gain and this should be true in any country, though the definition of cost basis may or will vary by jurisdiction. In the example that you gave, this date of 2001 almost certainly presumes that you OWNED it on that date or at least I would assume that it did. I see no reason to assume that anyone who acquired one after 2001 would arbitrarily receive the benefit of that valuation date UNLESS the tax law specifically says so. If someone acquired it afterwards, I would assume that the cost basis was the value on the "acquisition" date which in the example you gave, would be the date it was "found" or the estate settlement date.

 

I do not see that any taxing authority would ever consider how NGC (or PCGS) labeled a coin. It is irrelevant to a taxing authority. What might be relevant is whether the coin is considered bullion or a collectible though having it in an NGC or PCGS holder MIGHT help make that determination. For a Krugerrand in the US, it would be up to the taxpayer to prove that it is a collectible or bullion (whichever is more favorable) because the IRS (US tax agency) would presumably take the position most favorable to them (whichever one it may be) because that is what they always do. I presume that ANY revenue authority would do the same and that where there is a point of disagreement, that it is up to the taxpayer to prove that their position is correct. (Sort of like being considered guilty first and then having to prove you are innocent.)

 

To finish for now, I have also read on the SA Coin Company website that numismatic coins are exempt from CGT. However, I do not consider them an authoritive source because they do not make the rules.

 

Though tax laws differ between jurisdictions, I presume there is generally some logic to their construction, whether any of us do or do not agree with it. In the US, the underlying principle of the tax code is that everything you receive is income UNLESS an exclusion, deduction or credit is provided.

 

Oh and one other thing. Those links to the SA Revenue Source you included, if you are actually trying to make a determination for your tax situation now, you better confirm that you can actually rely on them first. In the US, the IRS is NOT BOUND by any public statements they make. By that, I mean what they include in a document such as a tax publication available to the public or what one of their employee's tell you if you call them. In this instance, it also appears to me that the content could be a "draft" unless they are simply in the process of adding it to or updating their website

Edited by jwither

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