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Jeff Nielson is the writer/editor of Bullion Bulls Canada. He came to the precious metals sector as an investor in the middle of last decade, and quickly decided this was where he wanted to focus his career. Jeff's background includes four years of Economics at the University of British Columbia, before he went on to earn his law degree from that same institution.

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Save Taxes With Gold And Silver Money

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Originally appeared as http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=22979:save-taxes-with-gold-and-silver-money&catid=48:gold-commentary&Itemid=131

Regular readers are familiar with my recommendations regarding acquiring and holding gold and/or silver bullion: we are acquiring “monetary insurance” today which could easily become our “money” tomorrow. I have also written about the alleged “capital gains” which are supposedly triggered when we spend our bullion.

My advice has been for people to specifically acquire gold and silver “legal tender” coins, since these coins are already officially “money” in our societies. The reason I have made this suggestion is simple: there is no precedent within our taxation system for assessing a “capital gain” when an individual converts one (“legal tender”) currency into another – for the express purpose of “spending” the new currency.

Indeed, I pointed out that people do precisely this millions of times every day around the world, when they travel to a jurisdiction with a different currency, and thus acquire some of that new currency to spend. Usually this is done during “vacations”, but it also occurs in the course of normal business travel with great regularity as well.

As a result, people who acquire gold or silver currency with their paper currency should expect no adverse tax consequences of any kind when they choose to spend that currency in the future. The absolute justice in such a legal position can be further reinforced by noting that under no circumstances would our governments ever allow us to claim a “capital loss” in the reverse scenario.

For example, suppose I am currently holding gold or silver legal tender currency. I foolishly believe the propaganda I read in the newspaper that gold and silver are overvalued, and so I convert my gold and silver currency to paper currency. If gold and silver prices subsequently rise (i.e. the price of my paper currency falls), I would never be allowed to claim a capital loss on that currency-swap when I spend my paper money (and thus lock-in that loss).

No taxation system can legitimately claim to impose a “capital gain” in a scenario where it is not willing to recognize corresponding “capital losses”. Thus this interpretation of tax law has logic, justice, and precedent all firmly supporting it.

Critics will argue that this is merely some legal technicality which I am seeking to exploit for my own “tax loophole” (and the advantage of other holders of gold and silver legal tender currency). My response to that would be to introduce all of those critics to our tax lawyers.

Every year, the very wealthy (and the corporations they own) pay tax lawyers billions of dollars in order to save $100’s of billions on their taxes. These tax lawyers “order the affairs of their clients in order to minimize the impact of taxation”. Translation: they help their clients take advantage of “tax loopholes”.

In the two years I spent studying “constitutional law”, I pretty much read every word of the Canadian Constitution, and I can assure readers that there is no clause within stating that tax loopholes are only allowed to be exploited by the very wealthy. While I have not read the U.S. Constitution, I would be willing to wager a very large bet that no such clause exists in that document either.

When we convert our paper currency into legal-tender gold and silver currency in order to avoid being victimized by the bankers’ game of serial dilution (of their paper money), and then we subsequently spend that money there are no “capital gains” triggered by such transactions. We have done absolutely nothing either illegal or unethical in ordering our affairs in that manner.

To this point I have only offered one (substantial) reason for specifically choosing to convert our paper currencies to legal tender gold and silver currency. However, why be satisfied with only one tax advantage from engaging in this strategy when we can also (legally) produce additional tax savings?

When I look at my “Gold Maple” (1-oz Canadian gold money) and see its official face value of $50; and when I look at my “Silver Maple” and see its official face value of $5, a thought immediately strikes me: it would be much cheaper to shop with my gold and silver dollars than with my paper dollars.

Let me explain. I walk into the a store looking to buy a present for my sweetheart. Feeling generous, I’m eying an item priced at a little over $1700 – in paper dollars. I decide that the price tag is within my budget, however what is the “budget-buster” is the more-than-10% in sales taxes that would be piled atop that purchase.

I get a better idea. Reaching into my pocket I pull out my 1-oz “$50” gold money. I tell the merchant that I can’t afford to spend $1700+ paper dollars on this gift (plus taxes), but I would be willing to pay $50 gold-dollars for it. And since both my gold money and my paper money are “legal tender currencies”, I tell the merchant I will use my paper money to pay the sales taxes on that transaction.

The merchant notes the current price of gold, notes that he loses nothing by conducting this transaction in gold dollars rather than paper dollars; while if he insists on concluding the transaction in paper dollars he loses a sale. So the merchant happily agrees to sell the item for gold dollars instead of paper dollars.

Critics of such a tax strategy (almost assuredly all either bankers, politicians, or tax lawyers) will argue that I have engaged in a “sham transaction” in order to evade (i.e. illegally avoid) taxes. My response would be that it was not me who created this “sham”.

Who chose to make 1-oz gold and silver coins “legal tender currencies” (i.e. official money) in our legal systems? Our governments did. Who intentionally chose arbitrary face values for this gold and silver money which had the inevitable effect of creating radically different values for gold dollars, silver dollars, and paper dollars? Our governments did.

If there is any “sham” here, it is quite obviously a sham created by our governments, not ourselves. The only legal issue here then becomes: have our governments engaged in a “legal sham” or an “illegal sham”?

As the Maker of Laws, our governments literally define what is “legal” or “illegal” (subject to certain Constitutional limitations). Thus our governments can also choose what are legal shams and what are illegal shams. Do our governments have the legal authority to create various official currencies, but with unequal dollar-values? Unquestionably they do. Case closed.

Naturally the paper-money “pimps” (i.e. the bankers) would not be satisfied with such a conclusion. “It is monstrously unfair,” they would claim, “To allow some people to pay much less tax just by ordering their affairs in a certain (legal) manner.”

As I’ve written previously, in fact tax lawyers rake-in $billions every year just to help “some people” (i.e. the very wealthy) pay much less tax, just by ordering their affairs in a certain (legal) manner. For decades, the little people (i.e. the “other 99%”) have complained that the $trillions which the very wealthy have saved in their own taxes by taking advantage of tax-loopholes is “monstrously unfair”.

For decades, the little people have complained that these tax-loopholes represented nothing but “sham transactions”, and thus should not be allowed. And for decades, as the top-1% have hoarded those $trillions in tax-savings, their response has always been the same: “it’s all perfectly legal”.

For all the holders of official gold and silver money, who would like their own opportunity to benefit from tax-loopholes (just like the top-1% do); just spend some of that money during the course of your ordinary shopping. It’s all perfectly legal.

There Is 1 Response So Far. »

  1. Great article!

    I will also point out that the question of face-value taxability of gold and silver sovereign coins (within their sovereign domain) has been upheld in the US. See:



    One can enhance what you’ve outlined in your article by suggesting that anyone who wants to transact with their precious metals coins make sure to explain to the prospective recipient that they, too, can do the same — keeping the transaction values based on the gold/silver coin pricing (as opposed to the prevailing fiat currency), thus lending the tax advantage in perpetuity.

    I’ll also point out that we currently have a situation where some *base metal coins* (i.e. currently-circulating pennies and nickels) also have a “metal metal market value” that is higher than their legal tender face value. Yet, the government does not run around attempting to collect capital gains on anyone who exchanges paper dollars for these coins.

    That is because, as you point out, it is still an exchange of legal-tender money for money, and the “market value” disconnect is the government’s own fault.

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