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Where an interest in a FIF forms part of your trading stock and you elect, under the trading stock provisions of the Act or section 70 of the Income Tax (Transitional Provisions) Act 1997, to bring those interests to account at market value, you are not subject to FIF taxation on income accruing from that interest. [SECTION 521]
If you bring an interest in a FIF to account as trading stock but do not avail yourself of the election, a change to the valuation methods available in the trading stock provisions will apply. The change will prevent movement between the methods of valuation and will require closing stock for the 1991-92 and subsequent income years to be valued consistently at cost. One exception to this treatment is where you used market value or replacement value for the opening value of an article of trading stock that is a FIF interest at the start of 1991-92. In this case, you use that value for that FIF interest.
This exemption is not available to a CFC that has an interest in a FIF as part of its trading stock. This is because a CFC cannot elect to value its trading stock at anything but cost when working out its attributable income under Part X of the Act. For further information, refer to Taxation Determination TD96/39. [SUBSECTION 31(7)]
Last modified: 08 Jun 2005QC 27386