If you are a business owner and you donate trading stock it may be tax deductible.
To be tax deductible under this gift type:
- you must be donating your trading stock outside the ordinary course of your business.
- you have not claimed an income tax deduction for the forced disposal or death of livestock.
What is trading stock?
Trading stock is generally anything your business produces, manufactures or acquires, to manufacture, sell or exchange. Livestock is also trading stock.
The tax deduction you can claim is the market value of the trading stock on the day you donate it.
If you are not registered for GST (and not required to be) you do not need to adjust the market value.
If you are registered for GST (or required to be registered) the market value is reduced by the amount of GST credit you would have been entitled to if:
- you acquired the property at its market value at the time you donated it
- the purchase had been only for a purpose that GST credits would apply to.
You may also need to include the market value of your donated trading stock in your assessable income. If the trading stock is valued at more than $5,000, you can use our valuation as long as we valued the trading stock no more than 90 days after your donation.
Example 1 – Donating stock with a GST credit
Madeleine runs a fabric shop and is registered for GST. She donates some of the shop's stock to a DGR on 7 November 2013. The market value on that day (including GST) was $2,200.
If she had bought the stock for $2,200 on that day, she would have been entitled to a GST credit of 1/11th if the stock was only to be used to sell. Therefore, she would have been able to claim back $200 of GST on the purchase.
As a result, the market value of the stock for gift deduction purposes would be $2,000 (that is, $2,200 minus $200).End of example
Example 2 – Disposing of trading stock outside the ordinary course of business
Joseph operates a retail business and values his trading stock at cost. In the 2012–13 income year, he purchased $2,000 of trading stock for resale in his business. The stock was still on hand at the end of June 2013. During the 2013–14 income year, he donated the same trading stock to a DGR. At the time of donating the stock it had a market value of $3,000.
In the 2012–13 income year, Joseph claims as a deduction the $2,000 cost of trading stock purchased in that year. He also records $2,000 as part of his trading stock on hand at the end of the year. Therefore, there is a neutral effect on his taxable income for the 2012–13 year.
In the 2013–14 income year, the stock forms part of his opening trading stock. On the day it is donated, the stock ceases to be trading stock and does not form part of his closing trading stock for that financial year. Joseph receives a deduction for the difference between his opening and closing stock values (that is, $2,000). As the gift is a disposal of trading stock outside the ordinary course of his business, Joseph also includes as income the market value of the trading stock (that is, $3,000). He will also claim a gift deduction for this amount. The overall effect in the 2013–14 income year is a reduction of $2,000 in his taxable income.End of example
- Abnormal primary production income – Profit from forced disposal or death of livestock
- Accounting for trading stock