Tax Law Improvement Act 1997 (121 of 1997)

Schedule 5   Trading stock (and some related matters)

Part 1   Amendment of the Income Tax (Transitional Provisions) Act 1997

1   At the end of Chapter 2

Add:

Part 2-25 - Trading stock

[The next Division is Division 70.]

Division 70 - Trading stock

Table of sections

70-1 Application of Division 70 of the Income Tax Assessment Act 1997

70-5 Treatment of items that become trading stock because of the change of definition

70-10 Accounting for your disposal of items that stop being trading stock because of the change of definition

70-20 Application of section 70-20 of the Income Tax Assessment Act 1997 to trading stock bought on or after 1 July 1997

70-40 Value of trading stock at the start of the 1997-98 income year

70-55 Cost of live stock acquired by natural increase

70-70 Valuing interests in FIFs on hand at the start of 1991-92

70-90 Application of sections 70-90 and 70-95 of the Income Tax Assessment Act 1997 to disposals of trading stock outside the ordinary course of business

70-100 Application of section 70-100 of the Income Tax Assessment Act 1997 to disposals of trading stock outside ordinary course of business

70-105 Application of section 70-105 of the Income Tax Assessment Act 1997 to deaths on or after 1 July 1997

70-115 Application of section 70-115 of the Income Tax Assessment Act 1997 to insurance and indemnity payments in 1997-98 and later income years

70-1 Application of Division 70 of the Income Tax Assessment Act 1997

(1) Division 70 (Trading stock) of the Income Tax Assessment Act 1997 applies to assessments for the 1997-98 income year and later income years. (It applies to assessments for the 1997-98 income year as if the value of trading stock on hand at the start of that year were the value specified in section 70-40 of this Act.)

(2) However, the sections of that Division listed in the table apply in accordance with the corresponding sections of this Act.

70-5 Treatment of items that become trading stock because of the change of definition

If:

(a) immediately before the 1997-98 income year you owned an item that was not trading stock as defined in subsection 6(1) of the Income Tax Assessment Act 1936 as in force at that time; and

(b) at the start of that income year you hold the item as trading stock as defined in section 70-10 of the Income Tax Assessment Act 1997 (the 1997 Act );

section 70-30 of the 1997 Act applies as if you had started to hold the item as trading stock as defined in section 70-10 of the 1997 Act immediately after the start of that income year.

70-10 Accounting for your disposal of items that stop being trading stock because of the change of definition

(1) This section explains how to account for your disposal of an item if:

(a) immediately before 1 July 1997, the item was an item of your trading stock, as defined in subsection 6(1) of the Income Tax Assessment Act 1936 as in force at that time; and

(b) the item has not been an item of your trading stock, as defined in section 70-10 of the Income Tax Assessment Act 1997, after that time; and

(c) the disposal occurs on or after 1 July 1997; and

(d) subsection 36(1) of the Income Tax Assessment Act 1936 would have applied to the disposal if it had occurred before 1 July 1997.

Example: This section applies to your disposal on or after 1 July 1997 of an item you produced, manufactured, acquired or purchased before that day for manufacture, sale or exchange, but did not hold for that purpose immediately before that day or since the start of that day.

(2) Sections 70-90 and 70-95 of the Income Tax Assessment Act 1997 (dealing with disposals of trading stock outside the ordinary course of business) apply to your disposal of the item as if it were an item of your trading stock (as defined in section 70-10 of the Income Tax Assessment Act 1997).

Note: Applying those sections ensures that your assessable income includes the market value of the item on the day of disposal. This counters your deduction under the Income Tax Assessment Act 1936 for your expenditure to acquire the item as trading stock.

[The next section is section 70-20.]

70-20 Application of section 70-20 of the Income Tax Assessment Act 1997 to trading stock bought on or after 1 July 1997

Section 70-20 (Non-arm’s length transactions) of the Income Tax Assessment Act 1997 applies to purchases that take place on or after 1 July 1997.

[The next section is section 70-40.]

70-40 Value of trading stock at the start of the 1997-98 income year

(1) The value of an item of trading stock on hand at the start of the 1997-98 income year is its value as taken into account at the end of the 1996-97 income year under Subdivision B (Trading stock) of Division 2 of Part III of the Income Tax Assessment Act 1936.

(2) The value of the item is a nil amount if the item was not taken into account as described in subsection (1).

[The next section is section 70-55.]

70-55 Cost of live stock acquired by natural increase

(1) Section 70-55 of the Income Tax Assessment Act 1997 applies to animals acquired by natural increase in or after the 1997-98 income year.

(2) For the purposes of Subdivision 70-C of the Income Tax Assessment Act 1997, the cost of an animal acquired by natural increase before the 1997-98 income year is the cost price of the animal under section 34 of the Income Tax Assessment Act 1936.

[The next section is section 70-70.]

70-70 Valuing interests in FIFs on hand at the start of 1991-92

(1) If:

(a) an interest in a FIF was an item of your trading stock on hand at the start of the 1991-92 income year; and

(b) that interest was also an item of your trading stock on hand at the end of the 1997-98 income year or a later income year;

the value of the item at the end of the 1997-98 or later income year is the value of the item as taken into account under Subdivision B (Trading stock) of Division 2 of Part III of the Income Tax Assessment Act 1936 at the start of the 1991-92 income year.

(2) This section has effect despite section 70-45 (the general rule about how to value your trading stock at the end of the income year) of the Income Tax Assessment Act 1997, but subject to subsection 70-70(2) (which allows you to elect to value all your interests in FIFs at their market value instead) of that Act.

Effect of election under subsection 31(5) of the Income Tax Assessment Act 1936 on valuation of interests in FIFs

(3) If you made an election under subsection 31(5) of the Income Tax Assessment Act 1936 (to value all your interests in FIFs at market value), subsection 70-70(2) of the Income Tax Assessment Act 1997 applies to your interests in FIFs as if you had made an election under subsection 70-70(2).

[The next section is section 70-90.]

70-90 Application of sections 70-90 and 70-95 of the Income Tax Assessment Act 1997 to disposals of trading stock outside the ordinary course of business

Sections 70-90 (Assessable income on disposal of trading stock outside the ordinary course of business) and 70-95 (Purchase price is taken to be market value) of the Income Tax Assessment Act 1997 apply to a disposal of an item of trading stock that takes place on or after 1 July 1997.

[The next section is section 70-100.]

70-100 Application of section 70-100 of the Income Tax Assessment Act 1997 to disposals of trading stock outside ordinary course of business

Basic application

(1) Section 70-100 (Notional disposal when you stop holding an item as trading stock) of the Income Tax Assessment Act 1997 applies to trading stock that stops being trading stock on hand of an entity on or after 1 July 1997.

Transitional provision if that section affects an assessment for 1996-97

(2) The value of trading stock to which subsection (4) of that section applies is to be worked out using the rules in the Income Tax Assessment Act 1936 (and not the rules in Subdivision 70-C of the Income Tax Assessment Act 1997) if:

(a) that section affects an assessment for the 1996-97 year of income under the Income Tax Assessment Act 1936; and

(b) an election is made under subsection (4) of that section to value trading stock at what would have been its value at the end of an income year ending on the day it became trading stock on hand of the second entity.

Note: Section 70-100 of the Income Tax Assessment Act 1997 may affect an assessment for the 1996-97 income year if any of the entities with an interest in the trading stock (either before or after it becomes trading stock on hand of the second entity) has a 1996-97 income year ending on or after 1 July 1997.

70-105 Application of section 70-105 of the Income Tax Assessment Act 1997 to deaths on or after 1 July 1997

(1) Section 70-105 (Death of owner) of the Income Tax Assessment Act 1997 applies to trading stock that devolves as a result of a person dying on or after 1 July 1997.

Transitional provision if that section affects an assessment for 1996-97

(2) The value of an item to which subsection (3) or (4) of that section applies is to be worked out using the rules in the Income Tax Assessment Act 1936 (and not the rules in Subdivision 70-C of the Income Tax Assessment Act 1997) if:

(a) that section affects an assessment for the 1996-97 year of income under the Income Tax Assessment Act 1936; and

(b) an election is made under subsection (3) or (4) of that section to value the item at an amount other than its market value.

Note: Section 70-105 of the Income Tax Assessment Act 1997 may affect an assessment for the 1996-97 income year if an entity on which the item devolves has a 1996-97 income year ending on or after 1 July 1997.

[The next section is section 70-115.]

70-115 Application of section 70-115 of the Income Tax Assessment Act 1997 to insurance and indemnity payments in 1997-98 and later income years

Section 70-115 (Compensation for lost trading stock) of the Income Tax Assessment Act 1997 applies to an amount received in the 1997-98 income year or a later income year by way of insurance or indemnity for a loss of trading stock, even if the loss occurred earlier. However, that section does not apply to an amount that is assessable income for an income year before the 1997-98 income year.