Commonwealth Consolidated Acts

INCOME TAX ASSESSMENT ACT 1997 - SECT 70.5

    The purpose of income tax accounting for trading stock is to produce an overall result that (apart from concessions) properly reflects your activities with your trading stock during the income year.

    There are 3 key features:

  (1)   You bring your gross outgoings and earnings to account, not your net profits and losses on disposal of trading stock.

  (2)   Those outgoings and earnings are on revenue account, not capital account. As a result:

  (a)   the gross outgoings are usually deductible as general deductions under section   8 - 1 (when the trading stock becomes trading stock on hand); and

  (b)   the gross earnings are usually assessable as ordinary income under section   6 - 5 (when the trading stock stops being trading stock on hand).

  (3)   You must bring to account any difference between the value of your trading stock on hand at the start and at the end of the income year. This is done in such a way that, in effect:

  (a)   you account for the value of your trading stock as assessable income; and

  (b)   you carry that value over as a corresponding deduction for the next income year.

Note:   You may not have to bring to account that difference if you are a small business entity: see Division   328.

Table of sections

70 - 10   Meaning of trading stock

70 - 12   Registered emissions units