Income Tax Assessment Act 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-25 - TRADING STOCK  

Division 70 - Trading stock  

Subdivision 70-D - Assessable income arising from disposals of trading stock and certain other assets  

Operative provisions

SECTION 70-110   You stop holding an item as trading stock but still own it  

70-110(1)    
If you stop holding an item as *trading stock, but still own it, you are treated as if:

(a) just before it stopped being trading stock, you had sold it to someone else (at *arm ' s length and in the ordinary course of business) for its *cost; and

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

Example 1:

You are a sheep grazier and take a sheep from your stock to slaughter for personal consumption. You are treated as having sold it for its cost. This amount is assessable income, just like the proceeds of sale of any of your trading stock.

Although you are also treated as having bought the sheep for the same amount, it would not be deductible because the sheep is for personal consumption.

Example 2:

You stop holding an item as trading stock and begin to use it as a depreciating asset for the purpose of producing your assessable income. You are treated as having sold it for its cost. This amount is assessable income, just like the proceeds of sale of any of your trading stock.

You are also treated as having bought the item for the same amount, which is relevant to working out the item ' s cost for capital allowance purposes (see Subdivision 40-C ) and the item ' s cost base for CGT purposes (see Division 110 ).

70-110(2)    

This section does not apply if:

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

(b) immediately after you stopped holding the item as trading stock, you start to *hold 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).