Taxation Determination
TD 92/198
Income tax: when can a taxpayer elect to use replacement value for valuation of trading stock under section 70-45 of the Income Tax Assessment Act 1997?
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FOI status:
may be releasedFOI number: I 1213761| This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953, is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. |
1. To elect replacement value as a method of trading stock valuation, the items must be available in the market and be substantially identical to the replaced items. The replacement value is the amount the taxpayer would have to pay in his normal buying market on the last day of the year of income.
2. There may be situations where the use of replacement value is not an option. In Parfew Nominees Pty. Ltd. v. FCT 1986 ATC 4673; (1986) 17 ATR 1017 the taxpayer, whose trading stock was strata title units, elected to use the replacement price method to value its trading stock in accordance with the former subsection 31(1) of the Income Tax Assessment Act 1936 (the provision replaced by section 70-45 of the Income Tax Assessment Act 1997). In the circumstances of that case, the court refused to accept replacement price valuation based on a notional calculation of constructing the same building on the same site as the basis of calculation defied business reality.
Example: 1
- (i)
- ABC Pty. Ltd. deals in office furniture. Its trading stock includes 1 metre high filing cabinets with 3 shelves. When ABC Pty. Ltd places an order for more filing cabinets it is informed that the 1 metre high cabinets are only manufactured with 2 shelves and not 3.
- Replacement value is acceptable in this situation as the cabinets are considered substantially identical.
- (ii)
- Assume the same situation as above but the only filing cabinets available on the market are now 1.5 metres high with 4 shelves.
Replacement value is not appropriate in this situation as the cabinets are not considered substantially identical.
Example: 2
XYZ are dealers in antique furniture.
As it is unlikely that these items of furniture can be replaced, the use of replacement value is not appropriate. XYZ can only elect cost or market selling value.
Commissioner of Taxation
10/12/92
Previously issued as Draft TD 92/D183
References
Related Rulings/Determinations:
CITCM 497
IT 2648
Subject References:
Trading stock,
replacement price method
Legislative References:
ITAA 1936 31(1)
ITAA 1997 70-45
Case References:
Parfew Nominees Pty. Ltd. v. FCT
1986 ATC 4673
(1986) 17 ATR 1017
| Date: | Version: | Change: | |
| 10 December 1992 | Original ruling | ||
| 29 November 2006 | Original ruling + note | Repeal provision note | |
| You are here | 2 February 2011 | Consolidated ruling | Addendum |