1.

5 Trading Stock: Div 70

Satisfy Trading Stock (TS) Definition? s70-10
-anything produced, manufactured or acquired that is
held for purposes of manufacture, sale or exchange
in the ord course of business and livestock

Other Notes
s70-15(3) denies deduction for
prepayment of TS
Water facilities not classified as TS

ON HAND? s70-10
- power of dispossession, possess risk of
TS
Farnsworth v FCT
not on hand
All States Frozen Foods v FCT; FCT v
Suttons Motors
on hand

NOT capital s70-25

- avoid ambiguity

Yes

No

General deduction s8-1(1)

Note: case law has established TS is a revenue
expense (s8-1 applies to purchases, refer next step)
Need to satisfy on hand before you can deduct

Valuing TS s70-45(1)
For each item, you can value at (changed yrly):
1) cost price
2) market selling value
3) replacement cost
(s70-50 allows lower value in cases of obsolete, becoming obsolete, special
circumstance)
Phillip Morris Ltd v FCT
- Used full absorption method to value TS w/ allocated fixed cost
Other acceptable valuation methods:
1) FIFO
2) Average Cost
3) Standard Cost (needs regular review)
4) Retail inventory method
*LIFO not acceptable

Specific Deduction for OS vs

CS? s70-35(1)
CS>OS AI s70-35(2)
CS<OS D s70-35(3)

Change in OWNERSHIP/INTEREST of TS
s70-100(1)-(3)
deemed disposal @ market value
-ORs70-100(4)
election to dispose at cost if:
1) TS is an asset in new business
2) former owners retain 25% interest in TS
3) MV @ disposal is greater than cost

Disposal of TS
S118-25(1) disregard CGT effects of
TS

OWNERSHIP/INTEREST
Disposal OUTSIDE
market value of item on day of disposal is
included in AI
s30-15
gifts (>$2) receive a deduction NOTE: net effect
= 0 may NOT be true! Refer to table in s30-15
s70-90

OUTSIDE

What is your business?

-nature of business
-characteristics of transactions
falling within that business
-character of the disputed
transaction

WITHIN

STOPPED HOLDING

No arms length? s70-20

- substitutes arms length value as amt
deducted (s8-1) or the valuation option
chosen (s70-40)

NO

Normal disposal of TS
under s6-5
-include proceeds in AI

Stopped holding it as TS?

s70-110
TP is deemed to have sold it for cost and
immediately reacquired it for the same amount
Affects Div 40-C (depn), and cost base in CGT

CAPITAL

TS

s70-30

CAPITAL ASSET
TS
deemed disposal of capital asset @ cost
OR MV (CGT event K4)

Ken Choi 2007