ATO Interpretative Decision
ATO ID 2002/625
Income Tax
Disposal of Trading StockFOI status: may be released
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This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Can the election under subsection 70-100(4) of the Income Tax Assessment Act 1997 (ITAA 1997) be exercised in respect of trading stock, distributed to beneficiaries on winding up of a deceased estate, so that the trading stock is brought to account at its closing value rather than its market value?
Decision
No. The election under subsection 70-100(4) of the ITAA 1997 cannot be exercised.
Facts
The assets of a deceased estate included a large parcel of land. The executors of the estate commenced a business of land subdivision in which the subdivided lots were treated as trading stock. The executors, having administered the estate for a number of years, decided to transfer the remaining lots as an in specie distribution to the beneficiaries of the deceased estate, so that the estate could be wound up.
Reasons for Decision
In order for an election to be made under subsection 70-100(4) of the ITAA 1997, there must first be a partial change in the ownership of an item of trading stock. Immediately after the change, the entity that held the item must no longer be the item's sole owner but must still retain an interest in the item in accordance with subsection 70-100(1) of the ITAA 1997.
An entity includes a trust, a trustee and a beneficiary in accordance with section 960-100 of the ITAA 1997.
Thus, it must be determined which entity (the trust, the trustee and/or the beneficiaries) held an ownership interest in the land before its transfer and which, if any, held an interest after the transfer.
While it is accepted that the beneficiaries of the deceased estate have a beneficial interest in the assets of the deceased estate whether fully administered or not, the legal ownership of the trust property prior to the transfer is in the trustee who holds it for the benefit of the beneficiaries. Thus, it is considered that the beneficiaries cannot be said to own the trading stock prior to the transfer.
After the transfer, the trustee who held ownership of the land previously has not retained an interest in it. The land is owned entirely by the beneficiaries to whom it has been transferred.
Therefore, as the conditions of subsection 70-100(1) of the ITAA 1997 have not been satisfied, the election under subsection 70-100(4) of the ITAA 1997 cannot be exercised.
Amendment History
| Date of Amendment | Part | Comment |
|---|---|---|
| 9 June 2017 | Reason for Decision | minor editorial/grammatical amendments |
Year of income: Year ending 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
section 960-100
subsection 70-100(1)
subsection 70-100(4)
Keywords
Disposal of trading stock
Trading stock valuation
Deceased estates
Date reviewed: 7 June 2017
ISSN: 1445-2782
| Date: | Version: | |
| 11 March 2002 | Original statement | |
| You are here | 9 June 2017 | Updated statement |
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