Income Tax Assessment Act 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-25 - TRADING STOCK  

Division 70 - Trading stock  

Subdivision 70-B - Acquiring trading stock  

SECTION 70-30   Starting to hold as trading stock an item you already own  

70-30(1)  
If you start holding as *trading stock an item you already own, but do not hold as trading stock, you are treated as if:


(a) just before it became trading stock, you had sold the item to someone else (at *arm ' s length) for whichever of these amounts you elect:

  • · its cost (as worked out under subsection (3) or (4));
  • · its *market value just before it became trading stock; and

  • (b) you had immediately bought it back for the same amount.

    Example:

    You start holding a depreciating asset as part of your trading stock. You are treated as having sold it just before that time, and immediately bought it back, for its cost or market value, whichever you elect. (Subdivision 40-D provides for the consequences of selling depreciating assets.)

    The same amount is normally a general deduction under section 8-1 as an outgoing in connection with acquiring trading stock. The amount is also taken into account in working out the item ' s cost for the purposes of section 70-45 (about valuing trading stock at the end of the income year).

    Note:

    Depending on how you elect under paragraph (1)(a), the sale may or may not give rise to a capital gain or a capital loss for the purposes of Parts 3-1 and 3-3 (about CGT). It does not if you elect to be treated as having sold the item for what would have been its cost: see subsection 118-25(2) . However, it can if you elect market value.

    When you must make the election

    70-30(2)  
    You must make the election by the time you lodge your *income tax return for the income year in which you start holding the item as *trading stock. (If you do not make the election by then because you do not realise until later that you started to hold the item as trading stock, you must make the election as soon as is reasonable after realising that.)

    However, the Commissioner can allow you to make it later (in either case).

    How to work out the item ' s cost

    70-30(3)  
    The item ' s cost is what would have been its cost for the purposes of section 70-45 (about valuing trading stock at the end of the income year) if it had been your *trading stock ever since you last acquired it. In working that out, disregard section 70-55 (about acquiring live stock by natural increase).

    70-30(4)  


    However, if you last acquired the item for no consideration, its cost is worked out using this table:


    Cost of item acquired for no consideration
    Item In this case: The cost is:
    1 you acquired the item during or after the 1998 - 99 income year, and the acquisition involved a *CGT event the item ' s *market value when you last acquired it
    .
    2 you acquired the item before or during the 1997 - 98 income year, and the acquisition involved a disposal of the item to you within the meaning of former Part IIIA (Capital gains and capital losses) of the Income Tax Assessment Act 1936 the item ' s *market value when you last acquired it
    .
    3 your acquisition of the item involved the item:
    (a) devolving to you as someone ' s *legal personal representative; or
    (b) *passing to you as a beneficiary in someone ' s estate;
    and, if a *CGT event had happened in relation to the item just before you started holding it as *trading stock, a *capital gain or *capital loss could have resulted that would have been taken into account in working out your *net capital gain or *net capital loss for the income year of the event
    (a) if the person died during or after his or her 1998 - 99 income year - the dead person ' s *cost base for the item just before his or her death; or
    (b) if the person died before or during his or her 1997 - 98 income year - the dead person ' s indexed cost base (within the meaning of former Part IIIA (Capital gains and capital losses) of the Income Tax Assessment Act 1936 ) for the item just before his or her death (but worked out disregarding former section 160ZG (which affects the indexed cost base for a non-listed personal use asset) of that Act)
    .
    4 any other case where you last acquired the item for no consideration a nil amount

    Exceptions

    70-30(5)  


    Subsection (1) does not apply if you start holding any of the following as *trading stock because they are severed from land:


    (a) standing or growing crops;


    (b) crop-stools;


    (c) trees planted and tended for sale.

    (This does not prevent subsection (1) from applying to a severed item that you later start holding as trading stock.)

    70-30(6)  


    Subsection (1) does not apply if:


    (a) you start holding an item as *trading stock; and


    (b) immediately before you started holding the item as trading stock, you *held the item as a *registered emissions unit.

    Note:

    A transaction that this section treats as having occurred is disregarded for the purposes of these provisions of the Income Tax Assessment Act 1936 :

  • · subsection 47A(10) (which treats certain benefits as dividends paid by a CFC)
  • · paragraph 103A(3A)(c) (which affects whether a company is a public company for an income year).

  •  

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