General trading stock rules
The general trading stock rules apply to you if the value of your trading stock changes by:
- more than $5,000
- $5,000 or less but you choose to do a stocktake and account for the change in value.
You can choose to do a stocktake and use the general trading stock rules even if you are eligible to use the simplified trading stock rules.
Under the general trading stock rules, you must do an end-of-year stocktake and record the value of all trading stock you have on hand at both:
- the beginning of the income year
- the end of the income year.
The value of stock at the end of an income year is usually the same as its value at the start of the next income year, however if, for some reason, the value of closing stock is:
- more than that of opening stock, you must include the difference as part of your assessable income
- less than that of opening stock, you can reduce your assessable income by the difference.
An increase in your trading stock's value over the year is assessable income, while a decrease is an allowable deduction.
If your business started trading during the income year, include the total value of stock on hand at the end of that year in your assessable income.
Holding your asset as trading stock
If you start holding a capital gains tax (CGT) asset that you already own (such as land) as trading stock for your business, there may be CGT implications.
Under the trading stock rules, you can choose to start holding the trading stock at either its original cost or its market value. If you choose market value, CGT event K4 will happen. This means that you may make a capital gain or loss.
General trading stock rules apply if the value of your stock changes by more than $5,000, or you choose to do a stocktake and account for the change in value.