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Edited version of private ruling

Authorisation Number: 1011566216974

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Ruling

Subject: Trading stock

Will stock purchased and shipped from overseas be considered trading stock while the stock is in transit?

Yes.

This ruling applies for the following period<s>:

Year ending 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a small business operator.

You manage your accounts on a cash basis.

A contract to complete a job for a client was signed in the 2009-10 income year.

You ordered the parts required and paid for them in full in June 2010 to ensure you received a discount.

Your supplier was not expecting to receive the goods until July or August 2010.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Section 70-10 of the Income Tax Assessment Act 1997 (ITAA 1997) defines trading stock as including:

The equipment acquired to complete the contract will be considered to be trading stock within the ordinary meaning of the term as per section 70-10 of the ITAA 1997.

When is the equipment 'trading stock on hand'?

Taxation Ruling IT 2670 expresses the Commissioner's position as to when goods are 'trading stock on hand'.

Trading stock is on hand if the taxpayer has the power to dispose of the stock, notwithstanding that they have not been physically delivered to the taxpayer's business premises. The view that dispositive power is the appropriate test is supported by the decision in All States Frozen Foods Pty Ltd v. Federal Commissioner of Taxatopj. (1990) 21 FCR 457; 90 ATC 4175; (1990) 20 ATR 1874. Generally, the power of disposal lies with the person who owns the stock.

In your case, you acquired the property in and dispositive power over the equipment once you paid for the goods in full, in accordance with the terms of the invoice. This is because the equipment is now your possession and can be dealt with, or in this case shipped, as you see fit. Therefore, the equipment is your property upon payment in full and is 'trading stock on hand' at that point in time.

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