ATO Interpretative Decision

ATO ID 2001/426 (Withdrawn)

Income Tax

Value of Trading Stock
FOI status: may be released

The decision is a straightforward application of the valuation choice under section 70-30, ITAA 1997, and is not interpretative within the meaning of PSLA 2001/8.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the taxpayer, a person who recently commenced business as a sole trader, able to elect under section 70-30 of the Income Tax Assessment Act 1997 (ITAA 1997) to value an item previously owned by the taxpayer which is now held as trading stock at 'cost', where 'cost' is the amount the taxpayer originally paid to acquire the item?

Decision

Yes. The taxpayer can elect under section 70-30 to elect to value an item previously owned by the taxpayer which is now held as trading stock at its cost or its market value. The cost of the item is the amount that the taxpayer paid to acquire it.

Facts

The taxpayer commenced a new business as a sole trader. The taxpayer started holding as 'trading stock' of the business an item that the taxpayer already owned, but which was not held as 'trading stock'. The item was originally acquired by the taxpayer for consideration. The item is not covered by any of the exceptions in subsection 70-30(5) of the ITAA 1997.

Reasons for Decision

When items become trading stock or cease being trading stock, there is deemed to be a notional sale and repurchase under the ITAA 1997.

Where items of property previously not held as trading stock by a taxpayer are then introduced as trading stock, this change is treated as a disposal and re-acquisition at either cost or market value. The taxpayer makes a valuation election under section 70-30 of the ITAA 1997 to choose the cost or market value of the property as its cost for trading stock purposes.

A deduction is available under section 8-1 of the ITAA 1997 at the time of the change as if the property had been acquired as trading stock from a third party.

The amount chosen is also taken to be the proceeds on disposal of the property for the purpose of working out the tax consequences of the notional disposal of the property. For example, the amount is also used to work out balancing adjustments under the depreciation provisions or any capital gain or loss.

Date of decision: 18 September 2001

Legislative References:
Income Tax Assessment Act 1997
   section 70-30
   section 70-45
   section 8-1

Keywords
Acquisition of trading stock
Valuation

Business Line: Private Groups and High Wealth Individuals

Date of publication: 4 October 2001

ISSN: 1445-2782

history

	Date:	Version:
	18 September 2001	Original statement
You are here	8 May 2009	Archived

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