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Ruling
Subject: Transfer of stock at cost
Question 1
Can the Trust which is conducting a business, transfer all of its stock at cost price to a number of separate entities in relation to section 70-90 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Advice/Answers
No, market value must be used.
This ruling applies for the following period:
Year ending 30 June 2013
The scheme commences on:
1 July 2012
Relevant facts and circumstances
The Trust is currently carrying on a primary production business and holds livestock.
The director of the Trustee company and the key individual running the business passed away.
The Trust intends to transfer the stock in equal proportions to separate trading entities which are owned by family members.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 70-D
Income Tax Assessment Act 1997 Section 70-90
Detailed reasoning
Subsection 70-90(1) of the ITAA 1997 states:
If you dispose of an item of your trading stock outside the ordinary course of a business:
that you are carrying on; and
of which the item is an asset;
your assessable income includes the market value of the item on the day of the disposal.
Application of the law
The Trust operates a business and holds trading stock which is considered to be an asset of the business.
The Trustee is considering transferring the trading stock of the Trust to a number of separate entities at cost. The transfer is occurring with the intention of disposing of assets in order to close down the business of the Trust. The Commissioner considers that these transfers are outside the ordinary course of business the Trust carries on.
When an entity stops holding trading stock, in this case due to transfer of the stock to another entity, section 70-90 of the ITAA 1997 operates to include in the assessable income of the entity the market value of the stock on the day of the disposal.
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