Practice Statement Law Administration
PS LA 2004/3 (GA)Trading stock: valuation of goods taken from trading stock for private use by sole traders or partners in a partnership
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FOI status: may be released
|TABLE OF CONTENTS||Paragraph|
|1. What is this practice statement about?|
|2. How will items of trading stock taken for private use be valued?|
|3. What records must be kept?|
|4. Establishing cost or market value in difficult situations|
|Example 1: Sole trader|
|Example 2: Sole trader - using Schedule in TD 2015/9|
|Example 3: Partnership - Item of trading stock taken for use by all partners|
|6. More information|
|This practice statement is an internal ATO document, and is an instruction to ATO staff.
If taxpayers rely on this practice statement, they will be protected from interest and penalties in the following way. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty. Nor will they have to pay interest on the underpayment provided they reasonably relied on this practice statement in good faith. However, even if they don't have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it.
This Law Administration Practice Statement explains how to value goods taken from trading stock for private use by sole traders or partners in a partnership.
1. What is this practice statement about?
Subdivision 70-D of the Income Tax Assessment Act 1997 (ITAA 1997) contains the rules about including the value of an item of trading stock in assessable income if the trading stock is disposed of outside the ordinary course of business or if the item ceases to be trading stock in certain other circumstances.
This practice statement explains the approach we will accept in regard to valuing goods taken from trading stock for private use by sole traders or partners in a partnership.
It also specifies record-keeping requirements.
2. How will items of trading stock taken for private use be valued?
How an item of trading stock taken for private use is valued depends on whether the item continues to be held by the same individual or individuals. If it is, then it is accounted for at cost. If it is not, it is accounted for at market value.
So, where an item is taken for private use by:
- a sole trader - it is included in assessable income at cost
- all the partners in a partnership for their joint use - it is included in assessable income at cost, or
- one or more, but not all the partners in a partnership - it is included in assessable income at market value.
However, in regard to this last point, we accept that where the items are of small value such that it is difficult or unreasonable for records to be kept (see section 3 of this practice statement), the items are taken for joint private use of all of the partners in the partnership, and can be accounted for at cost.
3. What records must be kept?
- the date the item is taken from stock
- the reason the item is taken
- a description of the item, and
- the cost or market value of the item (see also section 4 of this practice statement).
4. Establishing cost or market value in difficult situations
We recognise that for certain businesses or industries it is difficult to determine the value of an item of trading stock taken for private use. For these taxpayers, we issue a ruling for each income year providing a schedule of values of goods that may be used as a guide to the amounts that we will accept as estimates of the total value of items taken.
The industries where these difficulties may arise include those where the items of trading stock:
- are used in a transformation process, for example baking
- are a range of small items or ingredients, usually of low value
- are not suited to inventory systems, or
- are subject to high turnover, often for cash.
Example 1: Sole trader
Peter Purple operates a sole trader business as a butcher. He takes a leg of lamb home for his private use. The cost of the leg of lamb is required to be included in the assessable income of the business.
Example 2: Sole trader
- Peter may account for the items by recording the cost of the items as he takes them and include the total amount as assessable income of the business for that income year.
- Alternatively, Peter can use the schedule published by the ATO each year to calculate the total value of items taken and include that total in the assessable income of the business for the income year. If he did this, the amount that he would include should be calculated at the butcher's rate for 2 adults and one child (16 years or under).
Example 3: Partnership
Max and Perdita operate a partnership business together as butchers. They have a joint birthday party and decide to have a spit roast. They take a whole pig from trading stock for this purpose. The cost of the whole pig is required to be included in the assessable income of the partnership business.
At other times during the income year, Max and Perdita have separately taken items of trading stock for their private use. Max lives with his wife and a child aged 16, and Perdita lives with her husband and a child aged 17.
- The partnership business may account for the items of trading stock taken at cost and include the total amount as assessable income of the business for that income year.
- Alternatively, the partnership business can use the schedule published by the ATO each year to calculate the total value of items taken and include that total in the assessable income of the business for the income year. If they did this, the amount that they should be calculated at the butcher's rate for five adults (including children over 16 years) and one child (16 years or under).
6. More information
- Taxation Determination TD 2017/9 Income tax: value of goods taken from stock for private use for the 2016-17 income year
|Date of amendment||Part||Comment|
|21 December 2017||More information & Contact information||Updated|
|15 June 2016||Examples 2 & 3||Updated to remove references to specific years. Updated examples to remove amounts and instead explain the method.|
|Contact officer details||Updated|
|14 July 2015||All||Updated to new LAPS style and format.|
|Example 3||Updated - modified and elaborated.|
|15 April 2015||Example 2 & 3||Updated income year from '2013/14' to '2014/15' and 'TD 2014/2' to "TD 2015/9'.|
|Related public rulings||Updated 'TD 2014/2' to 'TD 2015/9'.|
|17 April 2014||Example 2 & 3||Updated income year from '2012/13' to '2013/14' and 'TD 2013/3' to 'TD 2014/2'.|
|Related public rulings||Updated 'TD 2012/20' to 'TD 2014/2'.|
|18 April 2013||Examples||Updated income year from '2011/12' to '2012/13' and reference from 'TD 2012/20' to 'TD 2013/3'.|
|13 November 2012||Generally||Updated to current corporate publication style.|
|Examples||Updated income year from '2010/11' to '2011/12' and reference from 'TD 2011/11' to 'TD 2012/20'.|
|8 July 2011||Various||'Tax Office' updated to ATO as per Style Guide recommendations.|
|Examples||Dates updated to current year.|
|Related public rulings||References updated.|
Date of Issue: 18 June 2004
Date of Effect: 1 July 1997
See sections 70 90 to 70-110 of the ITAA 1997.
Related Practice Statements:
PS LA 1998/1
ITAA 1997 section 4-5
ITAA 1997 Subdiv 70-D
ITAA 1997 section 70-90
ITAA 1997 section 70-100
ITAA 1997 section 70-110
ITAA 1997 section 960-100
ITAA 1997 section 995-1