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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1051389385329

Date of advice: 25 June 2018

Ruling

Subject: Disposal of trading stock

Unless otherwise noted, all statutory references below are to the Income Tax Assessment Act 1936 (“ITAA 1936”) or the Income Tax Assessment Act 1997 (“ITAA 1997”), as appropriate.

Question 1:

Is the product trading stock for income tax purposes, as defined in section 70-10 of the ITAA 1997, while held by Organisation A?

Answer:

Yes

Question 2:

For the purpose of section 70-90 of the ITAA 1997, should the transfer of the product back to Authority A be regarded as a disposal of trading stock within the ordinary course of business?

Answer:

Yes

Question 3A:

If the answer to Question 2 is “Yes”, should the amount on which Organisation A is assessed for income tax purposes, as a result of the transfer of the product, be equal to the amount paid as reimbursement for the product as determined by Authority A?

Answer:

Yes

Question 3B:

If the answer to Question 2 is “No”, will the amount on which Organisation A is assessed for income tax purposes, as a result of the transfer of the product, be equal to:

Answer:

Not applicable

Answer:

Not applicable

Question 4:

If the answer to question 3B(b) is “Yes”, does the Commissioner accept the current “as is” value per the valuation report as a proxy for market value? Consequently, the tax effect for Organisation A of the transfer of the product, is as follows:

Answer:

Not applicable

This ruling applies for the following period

1 July 20XX to 30 June 20XX

The Scheme commences on

1 July 20XX

RELEVANT FACTS AND CIRCUMSTANCES

Background

Organisation A’s role, objects and activities in general

Vesting of the product in Organisation A – XX XX 20XX

Product held as trading stock by Organisation A

Disposal of the product back to the Authority A – XX XX 20XX

Information provided

Assumption(s)

Not applicable.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-1

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 70-35

Income Tax Assessment Act 1997 Section 70-80

Income Tax Assessment Act 1997 Section 70-90

Further issues for you to consider

Not applicable.

REASONS FOR DECISION

QUESTION 1:

SUMMARY

The product is trading stock for income tax purposes, as defined in section 70-10 of the ITAA 1997, while held by Organisation A.

DETAILED REASONING

Definition of Trading Stock

Organisation A is a company for the purposes of the ITAA

Organisation A is carrying on a business

(a) Commercial intent and purpose of generating profit

(b) Activity is planned, organised and carried on in a business-like manner, rather than a hobby or recreational in nature

(c) Repetition and regularity of activities

(d) Size, scale and permanency of activities

The product should be regarded as being held by Organisation A for the purpose of manufacture, sale or exchange in the ordinary course of its business

QUESTION 2:

SUMMARY

For the purpose of section 70-90 of the ITAA 1997, the transfer of the product back to Authority A should be regarded as a disposal of trading stock within the ordinary course of business.

DETAILED REASONING

Transfer of the product

Nature of Organisation A’s business and the transactions reasonably expected to be undertaken

QUESTION 3A:

SUMMARY

The amount on which Organisation A is assessed for income tax purposes, as a result of the transfer of the product to Authority A, is to be equal to the amount paid as reimbursement for the product as determined by Authority A.

DETAILED REASONING


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