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  • Simpler trading stock rules for small businesses

    If you operate a small business and, at the end of the year, you estimate that your trading stock’s value has not changed by more than $5,000, you can choose not to conduct a formal stocktake and not to account for the changes in your trading stock’s value.

    Your estimate will be reasonable if either:

    • you maintain a constant level of stock each year and have a reasonable idea of the value of your stock on hand
    • your stock levels fluctuate, but you can make an estimate based on your records of the stock you have purchased.

    You need to use the general trading stock rules if the difference in your trading stock’s value has varied by more than $5,000.

    An increase in your trading stock’s value over the year is assessable income, while a decrease is an allowable deduction.

    Example: Value of trading stock changes

    Joel runs a knitwear store. His opening stock in 2017-18 was $5,600. Joel reasonably estimated the value of his closing stock for 2016-17 to be $8,000. As the difference is less than $5,000, he does not need to do a stocktake or include the increase in value of his stock in his assessable income.

    The value of his opening stock for 2017-18 is therefore recorded as $5,600. Joel reasonably estimates the value of his closing stock in 2017-18 to be $12,000. As the difference between the opening stock ($5,600) and his reasonable estimate of closing stock ($12,000) is greater than $5,000, Joel must do a stocktake and include the increase in value of his stock in his assessable income.

    End of example

    See also:

    Last modified: 25 Jun 2018QC 44443