INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART III - LIABILITY TO TAXATION  

Division 2 - Income  

Subdivision B - Trading Stock  

SECTION 31C   PURCHASE OF TRADING STOCK NOT AT ARM'S LENGTH  

31C(1A)   [No application from 1 July 1997 onwards]  

This section applies only to a purchase that takes place before 1 July 1997.

Note:

Section 70-20 (Non-arm's length transactions) of the Income Tax Assessment Act 1997 deals with purchases taking place on or after 1 July 1997.

31C(1)   [Non arm's length purchase of trading stock]  

Where -

(a) a person (in this section referred to as the purchaser ) has, on or after 21 April 1977, purchased from another person (in this section referred to as the vendor ) an article (in this subsection referred to as the relevant article ) that, for the purposes of the application of this Act in relation to the purchaser, was an article of trading stock;

(b) the Commissioner is satisfied that, having regard to any connexion between the vendor and the purchaser or to any other relevant circumstances, those persons were not dealing with each other at arm's length in relation to the transaction; and

(c) the Commissioner is satisfied -

(i) that the purchase price is greater than the amount (in this section referred to as the arm's length price ) that, in the opinion of the Commissioner, would have been the purchase price if the vendor and purchaser had been dealing with each other at arm's length in relation to the transaction; or

(ii) that -

(A) the purchaser could have purchased an identical article from another person and obtained delivery of the identical article at or about the time when the purchaser obtained delivery of the relevant article;

(B) the cost to the purchaser of purchasing the relevant article from the vendor was greater than the amount that, in the opinion of the Commissioner, would have been the cost to the purchaser of purchasing the identical article; and

(C) the purchase price of the relevant article is greater than the amount (in this section referred to as the alternative price ) that, in the opinion of the Commissioner, would have been the purchase price of the identical article,

the amount paid by the purchaser to the vendor in respect of the relevant article shall, for all purposes of the application of this Act in relation to the purchaser and the vendor, be deemed to be an amount ascertained in accordance with subsection (2).

31C(2)   [Ascertainment of deemed purchase price]  

The amount ascertained in relation to an article for the purposes of subsection (1) is -

(a) if the Commissioner is satisfied as to the matter mentioned in subparagraph (1)(c)(i) but not as to the matters mentioned in subparagraph (1)(c)(ii) - an amount equal to the arm's length price of the article;

(b) if the Commissioner is satisfied as to the matters mentioned in subparagraph (1)(c)(ii) but not as to the matter mentioned in subparagraph (1)(c)(i) - an amount equal to the alternative price of the article increased, if the purchaser would have incurred expenditure (apart from payment of the purchase price) in obtaining delivery of an identical article from another person as mentioned in subparagraph (1)(c)(ii) in excess of the expenditure (apart from payment of the purchase price) that the purchaser incurred in obtaining delivery of the relevant article, by such amount as the Commissioner considers fair and reasonable; and

(c) if the Commissioner is satisfied as to the matter mentioned in subparagraph (1)(c)(i) and also as to the matters mentioned in subparagraph (1)(c)(ii) - whichever of the following amounts is the lesser amount:

(i) the arm's length price of the article;

(ii) the amount that would be determined in relation to the article in accordance with paragraph (b) if that paragraph were applicable.

31C(3)   [Meaning of ``purchase'' extended]  

A reference in this section to the purchase by a person of an article of trading stock from another person shall be construed as including a reference to an acquisition of that article by the first-mentioned person from that other person that is deemed to have occurred for the purposes of section 36 by reason of the operation of section 36A or that would be so deemed to have occurred if sections 36 and 36A applied in relation to a disposal of trading stock in the ordinary course of carrying on a business.

31C(4)   [``Cost'' defined]  

In this section, a reference to the cost to a person of purchasing an article shall be construed as a reference to expenditure incurred by the person that is directly attributable to purchasing or obtaining delivery of the article.

31C(5)   [Purchase in ordinary course of family, etc, dealing]  

This section applies in relation to the purchase of an article of trading stock notwithstanding that the purchase was in the course of ordinary family or commercial dealing.