ATO Interpretative Decision

ATO ID 2002/1033

Income Tax

Trading Stock - Cessation of business
FOI status: may be released

This version is no longer current. Please follow this link to view the current version.


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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

On ceasing business, does the taxpayer stop holding an item as trading stock, for the purposes of section 70-110 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The taxpayer stops holding an item as trading stock, for the purposes of section 70-110 of the ITAA 1997.

Facts

The taxpayer, a sole trader, held certain items as trading stock of his business.

The taxpayer ceased carrying on his business in the 2001 tax year, but continues to solely own these item (these items are not livestock).

Reasons for Decision

Section 70-110 of the ITAA 1997 applies if a 'taxpayer stops holding an item as trading stock but still owns it'.

The definition of trading stock in section 70-10 of the ITAA 1997, applies from 1 July 1997 and includes a requirement that an item be held 'in the ordinary course of business' (this was not part of the definition of trading stock in section 6 of the Income Tax Assessment Act 1936). On ceasing business, an item is no longer held 'in the ordinary course of that business'. Therefore, the taxpayer stops holding these items as trading stock.

Date of decision:  5 July 02

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1997
   section 70-110
   section 70-10

Income Tax Assessment Act 1936
   section 6

Keywords
Trading stock
Trading stock on hand
Cessation
Closing Stock

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  30 October 2002

ISSN: 1445-2782

history
  Date: Version:
You are here → 5 July 2002 Original statement
  8 May 2009 Archived

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).