INCOME TAX ASSESSMENT ACT 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-25 - TRADING STOCK  

Division 70 - Trading stock  

Subdivision 70-D - Assessable income arising from disposals of trading stock and certain other assets  

Operative provisions

SECTION 70-100   Notional disposal when you stop holding an item as trading stock  

70-100(1)  
An item of *trading stock is treated as having been disposed of outside the ordinary course of *business if it stops being trading stock on hand of an entity (the transferor ) and, immediately afterwards:


(a) the transferor is not the item ' s sole owner; but


(b) an entity that owned the item (alone or with others) immediately beforehand still has an interest in the item.

Example:

A grocer decides to take her daughters into partnership with her. Her trading stock becomes part of the partnership assets, owned by the partners equally. As a result, it becomes trading stock on hand of the partnership instead of the grocer. This section treats the grocer as having disposed of the trading stock to the partnership outside the ordinary course of her business.

Note:

If the transferor is the item ' s sole owner after it stops being trading stock on hand of the transferor, section 70-110 applies instead of this section.

70-100(2)  


As a result, the transferor ' s assessable income includes the *market value of the item on the day it stops being *trading stock on hand of the transferor.

70-100(3)  
The entity or entities (the transferee ) that own the item immediately after it stops being *trading stock on hand of the transferor are treated as having bought the item for the same value on that day. Election to treat item as disposed of at closing value

70-100(4)  
However, an election can be made to treat the item as having been disposed of for what would have been its *value as *trading stock of the transferor on hand at the end of an income year ending on that day.

70-100(5)  
If this election is made, this *value is included in the transferor ' s assessable income for the income year that includes that day. The transferee is treated as having bought the item for the same value on that day.

70-100(6)  
This election can only be made if:


(a) immediately after the item stops being *trading stock on hand of the transferor, it is an asset of a *business carried on by the transferee; and


(b) immediately after the item stops being trading stock on hand of the transferor, the entities that owned it immediately beforehand have (between them) interests in the item whose total value is at least 25% of the item ' s *market value on that day; and


(c) the *value elected is less than that market value; and


(d) the item is not a thing in action.

70-100(7)  
Also, the election can only be made before 1 September following the end of the *financial year in which the item stops being *trading stock on hand of the transferor. However, the Commissioner can allow the election to be made later.

70-100(8)  
An election must be in writing and signed by or on behalf of each of:


(a) the entities that own the item immediately before it stops being *trading stock on hand of the transferor; and


(b) the entities that own it immediately afterwards.

70-100(9)  
If a person whose signature is required for the election has died, the *legal personal representative of that person ' s estate may sign instead. When election has no effect

70-100(10)  
An election has no effect if:


(a) the item stops being *trading stock on hand of the transferor outside the course of ordinary family or commercial dealing; and


(b) the *consideration receivable by the transferor (or by any of the entities constituting the transferor) substantially exceeds what would reasonably be expected to be the consideration receivable by the entity concerned if the *market value of the item immediately before it stops being trading stock on hand of the transferor were the *value elected under subsection (4).

Note:

Section 960-255 may be relevant to determining family relationships for the purposes of paragraph (10)(a).

70-100(11)  
Consideration receivable by an entity means so much of the value of any benefit as it is reasonable to expect that the entity will obtain in connection with the item ceasing to be *trading stock on hand of the transferor.


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