Income Tax Assessment Act 1997



Division 727 - Indirect value shifting affecting interests in companies and trusts, and arising from non-arm ' s length dealings  

Subdivision 727-H - The adjustable value method  

Consequences of the method for various kinds of assets

SECTION 727-835   Trading stock  

This section deals with:

(a) how this Division applies to an * equity or loan interest that is * trading stock of an entity at the time (the adjustment time ) immediately before the * IVS time; and

(b) the income tax consequences of this Division reducing or uplifting the * adjustable value of the interest.

The interest ' s adjustable value at a particular time is:

(a) if the interest has been * trading stock of the entity ever since the start of the income year of the entity in which that time occurs - its * value as trading stock at the start of the income year; or

(b) otherwise - its cost.

If this Division reduces or uplifts the interest ' s * adjustable value, the entity is treated as if:

(a) immediately before the adjustment time, the entity had sold the interest to someone else (at * arm ' s length and in the ordinary course of business) for its * adjustable value immediately before that time; and

(b) immediately after the adjustment time, the entity had bought the interest back for the reduced or uplifted adjustable value.


The notional sale and repurchase are separated in time. As a result, if this section is applied to another indirect value shift that happens later in the same income year, the interest ' s adjustable value will be the cost on the notional repurchase: see paragraph (2)(b).


However, the increase in the cost of an interest because of paragraph (3)(b) is taken into account from time to time only to the extent that the amount of the increase is still reflected in the * market value of the interest.

The situations where the increase in cost would be taken into account include:

  • in working out your deductions for the cost of trading stock acquired during the income year in which the increase happens; and
  • the end of an income year if the interest ' s closing value as trading stock is worked out on the basis of its cost; and
  • the start of the income year in which the interest is disposed of, if that happens in a later income year and the interest ' s closing value as trading stock at the end of the previous income year was worked out on the basis of its cost.
  • 727-835(5)  
    If this Division provides for the * adjustable value of the interest to be both reduced and uplifted:

    (a) the reduction and uplift offset each other to the extent of whichever of them is the lesser, and subsection (3) of this section applies accordingly; but

    (b) to the extent that the amount of the uplift is no longer reflected in the *market value of the interest, this section is taken always to have applied on the basis that the amount of the uplift was reduced to the same extent.


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