Part C: Closing stock

Warning:

This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

End of attention

Did you have trading stock on hand at the end of the year?

If you are eligible to enter or continue in the STS and have chosen to do so at item S1, read on. Otherwise go to Closing stock for other businesses.

Closing stock for STS taxpayers

You need to know

You only need to account for changes in the value of your trading stock if there is a difference of more than $5,000 in the value of all your stock on hand at the start of the income year and a reasonable estimate of the value of all your stock on hand at the end of the income year.

The value of your stock on hand at the start of the income year is the same value as the closing value shown on your schedule in the previous year. This may not necessarily reflect the actual value of your stock if you did not account for the change in value of your stock in the previous year. For more information on a reasonable estimate of the value of stock, refer to the publication Simplified tax system: simplified trading stock rules: reasonable estimate or phone the Small business infoline on 13 28 66 or visit the Tax Office website at www.ato.gov.au

You can still choose to conduct a stock take and account for changes in the value of trading stock, if you wish.

Is the difference between the value of your opening stock and a reasonable estimate of your closing stock more than $5,000?

You must include in your closing stock value at M item P8 the value of all stock on hand, regardless of whether you have paid for the stock.

Closing stock for other businesses

You need to know

This is the total value of all trading stock on hand at the end of the year. The amount that is shown at Closing stock is the total of the value of each item of trading stock calculated for tax purposes under section 70-45 of ITAA 1997.

Trading stock is anything you have on hand which you produced, manufactured, acquired or purchased for the purpose of sale, manufacture or exchange. For example, trading stock includes livestock but not working animals (except those used by a primary producer), crops and timber when harvested and wool after it is removed from the sheep.

Manufacturers must include as trading stock partly manufactured goods and materials on hand. However, closing stock excludes any amount that represented closing stock of a business that ceased operations during the year. This amount is included in Other business income at I or J in the INCOME section item P8 on your schedule. For more details about what constitutes trading stock, phone the Tax Office.

You can choose one of the following three methods to value your trading stock:

• cost
• market selling value
• replacement value.

You may elect to value an item of trading stock below the lowest value calculated by any of these methods because of obsolescence or other special circumstances.

The value you elect must be reasonable. Where you elect to value an item of trading stock below cost, market selling value and replacement value, you must complete item P19 on your schedule.

You may use different methods to calculate each item of trading stock in different years or for different items in the same year. However, the opening value of each item in a particular year must be the same as the closing value for that item in the previous year.

If you are registered for GST, the value of closing stock should not include an amount equal to the input tax credit that would arise if you had acquired the item solely for business purposes at the end of the year of income. Input tax credits do not arise for some items of trading stock, such as shares.

If you are a primary producer, you must add the value of your closing stock from your livestock account at P1 on your primary production worksheet to the value of your closing stock from your produce account at P6 on your primary production worksheet.

As the tax value of stock on hand is to be shown at P6 on your primary production worksheet, you cannot reduce its value by accounting entries. Keep records showing how each item was valued.