"How is gold taxed in Canada when it comes time to selling..."

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Category: International Planning Q&A

Published on Tuesday, 18 October 2011 10:01

Written by Greg McNally

Question from a Canadian-based IM Member:

Q: "How is gold taxed in Canada when it comes time to selling? Is it the same rules for the white metals (silver, platinum and palladium)? Are there any advantages to buying precious metals in a Canadian corporation versus personally from a tax point of view?"

A (by Greg McNally): Commodities, including all metals, are generally treated as capital assets and subject to capital gains tax on sale or deemed disposition. To calculate your taxes payable on a sale you would take 1/2 of the net profit (sale price - cost) and add that amount to your ordinary income and multiply the income at the applicable tax rate in the province you live in.

A few illustrations:

Illustration #1:

You reside in Ontario and your current yearly earned income is approximately $250,000, which puts you in the highest tax bracket at 40.16%.

A few years ago, you bought 100 oz. of gold maple leafs at $1,000/oz for a total of $100,000. You sell all the coins at the end of 2011 at $2,000/oz for $200,000, leaving a $100,000 gain.

Your tax bill on just the capital gain will be half of the gain ($50,000) x 40.16% = $20,080.

Illustration #2:

You reside in Alberta and your current yearly earned income is approximately $70,000.

A few years ago, a relative left you $100,000 in his will after taxes, of which you bought 100 oz. of gold maple leafs at $1,000/oz for a total of $100,000. You sell all the coins at the end of 2011 at $2,000/oz for $200,000, leaving a $100,000 gain.

Your taxes will equal half of the gain ($50,000) plus your $70,000 of ordinary income multiplied by whatever the marginal tax rate is in Alberta for your total income (i.e. $120,000). The portion attributable to just the capital gain will be approximately $17,300.

The sale of a capital asset held in a Canadian corporation is taxed at half the gain multiplied by the top marginal rate in the province where the corporation is resident. There is then a credit given in the corporation (called the capital dividend account) to allow the after tax dollars to flow to the shareholder without additional tax.

Unless there are capital losses in the corporation that you can take advantage of or some other planning considerations beneficial to a corporation, the taxes payable on the gains created by the bullion should not be less in a corporation than you would pay personally.

About N. Gregory McNally, BA, LL.B, MBA, JD, LL.M (Int'l Tax), TEP
A Canadian by birth, Greg McNally is an international tax lawyer by training. He has earned various degrees, including law degrees in both Canada and the United States, a Masters of Law in International Tax and a Masters in Business Administration. He practiced law in the Turks and Caicos Islands for 10 years from 1992 until 2002, when he returned to Canada and joined the Royal Bank (Global Private Banking) as their Senior Manager of International Services in Toronto. In 2004, he started an international tax consulting firm called N. Gregory McNally & Associates Ltd., where he now oversees the development and implementation of customized international wealth management solutions on behalf of high-net-worth and ultra high-net-worth clients.

PLEASE NOTE: The information contained within this article is based on the best research we could find as of the date of publication. However, the world changes fast and information can become out of date relatively quickly. So, two points... First, before undertaking any action described in this material, please conduct your own due diligence and verify all facts. Second, if you happen to spot an out of date fact or figure (or even suspect something is out of date or false), simply get in touch with us and we'll look into it. International Man is a network made up of some very smart people - tax specialists, accountants, lawyers, analysts and many other talented individuals. As a group, we can create and maintain a very accurate and highly actionable resource for internationalization.

Tags: Canada , gold , Greg McNally , palladium , platinum , precious metals , selling gold , silver , white metals