Cash for gold not exempt from tax

National Post

2009-10-31



It seems everywhere you look, there is someone lining up to buy all that unwanted gold you've been hoarding. It started last year with the pawn shops and jewellery stores, some of which have taken to running non-stop TV ads in local markets depicting smiling owners and customers excitingly waving stacks of cash.

No doubt the meteoric rise in the price of gold over the past year, which hit a record high this month, topping US$1,064 an ounce, has prompted people to consider turning their unworn gold jewellery into cold, hard cash.

Last week, I got invited to my first cash-for-gold party, where party-goers are asked to bring their unwanted gold for a free, no-obligation appraisal. These "parties" are promoted as win-win-win: The buyer gets the gold, the seller gets cash and the host collects up to 10% of the total transaction value that night.

If this sounds tempting, consider the tax consequences of selling your gold for cash. Here's a quick review of the rules:

While a coin dealer who purchases gold coins from an individual has an obligation to report the sale to the CRA and issue a T5008 tax slip to the seller, there is no such reporting requirement for gold jewellery.

The seller, on the other hand, may have an obligation to declare any gains from the sale of jewellery on her tax return since jewellery is considered to be "listed personal property" (LPP).

LPP is a special category of personal-use property, meaning items you own for your personal use and enjoyment, such as furniture, cars or boats.

While most personal use property depreciates over time, LPP usually increases in value over time. Listed personal property includes jewellery, works of art, rare books, stamps and coins.

The sale of personal-use property, including LPP such as jewellery, can result in a capital gain, but it's calculated based on special rules. Under these rules, if the amount you paid (your adjusted cost base or ACB) is less than $1,000, it's deemed to be $1,000 for tax purposes.

Similarly, if the cash you receive for your jewellery is less than $1,000, your proceeds of disposition for tax purposes are considered to be $1,000.

The practical result of these rules is that if both the ACB and the cash you receive for your gold jewellery are both under $1,000, you don't have to report any gain or loss.

A capital gain from the sale of jewellery must be reported on Schedule 3 of your personal tax return. A capital loss, however, is considered to be an "LPP loss," which can only be deducted against other LPP gains. Any unused LPP losses can be carried back three years or carried forward for seven years.