Several different tax forms stacked on top of each other

Understanding Taxes on Gold and Silver Investments

Before you invest in gold and silver, you need to know how they’re taxed and what you can do to stay above board with the Canada Revenue Agency. Gold and silver bullion are unique investments. It’s rare for people to have a chance to hold their investments in their own two hands, and that can cause some confusion for investors.

While this guide is not tax advice, it should prepare you for what to expect when it comes to taxes and precious metals. We encourage investors to do their research before buying gold and silver, and understanding how taxes work on gold and silver investments is a crucial part of becoming a successful investor.

How Are Gold and Silver Bullion Taxed in Canada?

In Canada, you don’t pay sales tax (GST/HST) when you buy stocks, bonds, or other financial instruments. The government recognizes that these are investments meant to help you grow your savings, and they choose to tax growth rather than the initial purchase. Gold and silver are also treated as investments as long as they meet the government’s standard for bullion. We have more information on which gold and silver products are GST/HST-free further down, but here, let’s take a look at how taxes on gold bullion work.

The important takeaway is that when you invest in bullion, you don’t have to pay GST/HST when you buy the product. Instead, you pay capital gains taxes when you sell your bullion.

Your Guide to Capital Gains Taxes

Capital gains taxes are taxes on the profits that you earn when you sell an investment asset like stocks, bonds, GICs, ETFs, real estate, business assets, or gold and silver bullion.

1. How much are capital gains taxes?

There are a lot of misconceptions about how capital gains taxes work because of the language people use to describe them.

First, it helps to understand that there is no fixed capital gains tax rate. When you profit from an investment, only 50% of those profits are considered income, which is then taxed at your marginal tax rate. Your marginal tax rate varies by province and is determined by how much other income you’ve earned.

In other words, it’s all income tax. Capital gains rules simply determine how much of your profits you have to pay taxes on. The other half of your profits are tax-free, which should encourage you to save and invest.

2. When do you pay capital gains taxes?

You only pay capital gains taxes when you sell the asset in question and realize your gains. You do not have to worry about capital gains taxes just because the value of your assets has increased. Set aside money from the transaction to pay when you file your income taxes for the year. Smart tax planning can help you prepare for this.

3. You can claim capital losses.

Capital losses occur when you sell an asset for less than what you paid for it. You can apply capital losses against your capital gains for the year, reducing the total amount of money that you will have to pay taxes on.

If your capital losses exceed your capital gains, you may be able to reduce your taxable capital gain for any of the three preceding or future years. This can be useful if you recently paid a lot in capital gains or you are planning a major sale of assets in the near future.

4. Example of capital gains taxes.

With all of this information, let’s take a look at an example. John earns $55,000 annually from his job, and his taxes are deducted at payroll. He decides to sell ten ounces of gold at $2,500 each. He only paid $1,500 an ounce when he purchased them, so in total he earns $10,000 in profit.

Only 50% of those profits ($5,000) are added to his income for tax purposes. John lives in Ontario, and his combined marginal tax rate (federal and provincial) at that income is 31.48%. He can expect to pay $1,574 in taxes on the profits earned from selling gold.

Now let’s say that in the same year, John also accumulated a capital loss. He lost roughly $2,000 selling stocks in a company that had performed poorly that year. He can use this capital loss to reduce his capital gains from $10,000 to $8,000. Now he only pays taxes on $4,000, resulting in a bill for $1,259.20 at tax time.

It’s recommended that you work with an accountant when you’re paying capital gains or making use of capital losses. This is only an example meant to illustrate how capital gains taxes work in Canada.

Stack of coins in front of a graph charting capital gains

How to Prepare for Tax Time When You Invest in Bullion

In order to make sure that you are ready come tax time, you should keep a record of all of your transactions when you buy and sell bullion to Global Bullion Suppliers. When you have a detailed record of the prices you paid for your investments, you can quickly look up how much you profited or lost with each sale.

This detailed information will also help you make more informed decisions about your investments and help you identify profitable times to sell bullion. Make sure you get receipts from bullion dealers any time that you buy or sell bullion. You or a benefactor of an inheritance you decide to leave behind may wind up needing a record of the prices you paid or received when it comes time to deal with the tax consequences of bullion.

What Taxes Do You Pay on Bullion Inheritances?

Bullion is a popular asset for passing wealth down to future generations. If you have personally inherited gold or silver bullion, you may be concerned about how it will be taxed.

Canada does not have an inheritance tax. Instead, the estate is taxed accordingly before you receive any inheritance. You will not have to pay any tax on gold or silver until you sell i  when it becomes a capital gain.

How do you calculate that gain? The cost of acquisition of inherited gold or silver is the cost of acquisition paid by the person you inherited it from.

GST/HST: Which Gold and Silver Products Are Not Financial Instruments?

The goods and services that must be taxed with GST/HST are defined by the Excise Tax Act, but you can also find a list of financial instruments that are not taxed the same. The list includes common investment vehicles under the category of financial services. Financial services include:

  • Debt securities (bonds)
  • Equity securities (stocks)
  • Insurance policies
  • Option and future contracts for commodities
  • And precious metals.

The Government of Canada defines precious metals as bars, coins, ingots, and wafers of gold and silver refined to a purity of at least 99.5% for gold and 99.9% for silver. Any gold and silver products that do not meet these purity thresholds are consumer goods. You will have to pay GST/HST when you buy physical gold in Canada that does not meet these purity standards, and it will often come in the form of jewellery, gold watches, etc.

Do You Pay Sales Tax on Junk Silver?

Junk silver is the term used for old circulation coins that used real silver. These include dollars, half-dollars, quarters, and dimes minted before a certain date, depending on the country of origin. While some collectors and investors buy junk silver as an investment, banking on rising silver prices, they do not meet the purity threshold to be exempt from GST/HST. You will have to pay sales taxes on junk silver.

You will have to buy silver bullion if you want to avoid GST/HST on silver. That restricts you to coins and bars that are at least 99.9% pure silver.

Seven investment quality one ounce gold bars

Why Isn’t Gold Jewellery Sold at Higher Purities?

If you could buy gold jewellery or a gold watch that was at least 99.5% gold, you wouldn’t have to pay sales taxes on it, right? This begs the question: why is it hard to find 24-karat gold jewellery or watches?

There is a very good reason that 24-karat gold is hard to find outside of bullion products. That’s because both silver and gold are extremely malleable. This makes it very easy to work with, but it also means that finished products made from pure gold are extremely easy to damage. Finished gold and silver products like jewellery can quickly become dented, scratched, or bent out of shape in their purest forms.

Jewellery makers turn these precious metals into alloys by combining them with stronger metals. They commonly create alloys with copper, silver, platinum, nickel, zinc, cadmium, iron, and manganese to add strength and durability to jewellery. Different alloys can also give the metal new features. For example, copper and silver alloy with gold to create rose gold, while copper and cadmium can create a light green colour.

Does It Make Sense to Invest in Bullion When You Pay Taxes?

Now that you’re familiar with how taxes on bullion work, does it still make sense to invest? Bullion is taxed no differently from other financial assets that you can choose to include in your portfolio. Stocks, bonds, real estate, mutual funds, ETFs, and other financial instruments are all taxed under capital gains rules.

If you still have questions about investing in bullion for the first time, book a consultation with Global Bullion Suppliers. We offer free, 30-minute consultations where we can walk you through the ins and outs of investing in bullion. We want our clients to make informed financial decisions that will benefit their portfolios. We’ll make sure you know everything there is to know about bullion terms, premiums, and the differences between products.

Gold and silver bullion are great assets to help you balance your portfolio and diversify beyond volatile stock markets and low-interest bonds or GICs. Bullion can help you reduce your overall investment risks and widen your opportunities for growth. Understanding how bullion is taxed will help you make more informed investment decisions.

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