Taxation Determination

TD 96/45

Income tax: where a wholesaler's account for trading stock provides a retailer with a prompt payment discount which can be accumulated in an account, applied to the acquisition of new shares or transferred to an affiliated person or persons or company:

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can the retailer claim a deduction for the full purchase price;

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and is the discount assessable?

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FOI status:

1. Yes to both.

2. The retailer is entitled to an allowable deduction under subsection 51(1) of the Income Tax Assessment Act 1936 (the Act) for the gross amount at the time of the contract for the purchase of the goods (see paragraph 11 of Taxation Ruling TR 96/20).

3. Where a discount is received for prompt payment, the amount of the discount is assessable income pursuant to subsection 25(1) of the Act at the time the liability is satisfied (see paragraph 19 of Taxation Ruling TR 96/20).

4. Where the discount is transferred to the account of an affiliated person, the discount will have been received by the retailer and dealt with according to the retailer's instructions. The discount is still assessable income of the retailer in accordance with section 19 of the Act.

5. A similar result occurs where a retailer is given the opportunity of accumulating trading discounts (incentives/rebates), wholly or in part, which may be applied towards the acquisition of new shares in the wholesaler company. In this situation, the discount is also derived by the retailer upon (sufficiently prompt) payment of the invoice being made.

6. Typically, however, there is no obligation to apply the account to the acquisition of shares, nor to leave any balance in the account indefinitely. The retailer can withdraw from the fund or make withdrawals from their incentive/rebate account at any time. Any such subsequent dealing with the moneys in the incentive account does not have taxation implications for the retailer.

Last Determination

This is the last Taxation Determination for the 1996 calendar year. The next Determination will be Taxation Determination TD 97/1.

Commissioner of Taxation
18 December 1996

Previously released as TD 96/D13

References

ATO references:
NO J36/359 Vol 1; NAT 94/8736-1

Related Rulings/Determinations:

TR 96/20

Subject References:
allowable deductions
assessable income
cash settlement discount
discount
prompt payment settlement
settlement discount
trading stock

Legislative References:
ITAA 19
ITAA 25(1)
ITAA 51(1