Income Tax (Transitional Provisions) Act 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-25 - TRADING STOCK  

Division 70 - Trading stock  

SECTION 70-10   Accounting for your disposal of items that stop being trading stock because of the change of definition  

70-10(1)    
This section explains how to account for your disposal of an item during or after the 1997-98 income year if:

(a) just before that income year, the item was an item of your trading stock, as defined in subsection 6(1) of the Income Tax Assessment Act 1936 as in force at that time; and

(b) at no time since that time has the item been an item of your trading stock, as defined in section 70-10 of the Income Tax Assessment Act 1997 .

Example:

This section applies to an item you produced, manufactured, acquired or purchased before 1997-98 for manufacture, sale or exchange, but have not held for that purpose at any time since just before the start of that year.

If the disposal is outside the ordinary course of business

70-10(2)    
If:

(a) the disposal occurred on or after 1 July 1997; and

(b) former subsection 36(1) of the Income Tax Assessment Act 1936 (dealing with disposals of trading stock outside the ordinary course of business) would have applied to the disposal if it had occurred before 1 July 1997;

sections 70-90 and 70-95 of the Income Tax Assessment Act 1997 (dealing with disposals of trading stock outside the ordinary course of business) apply to your disposal of the item as if it were an item of your trading stock (as defined in section 70-10 of the Income Tax Assessment Act 1997 ).

Note:

This ensures that your assessable income includes the market value of the item on the day of disposal. This counters your deduction under the Income Tax Assessment Act 1936 for your expenditure to acquire the item as trading stock.

Additional rule for early balancers

70-10(3)    

If the disposal occurred before 1 July 1997, then, for the purposes of former subsection 36(1) of the Income Tax Assessment Act 1936 (dealing with disposals of trading stock outside the ordinary course of business), the item is taken to have been, at the time of the disposal, trading stock as defined in section 70-10 of the Income Tax Assessment Act 1997 .

Note:

See the note to subsection (2).

Deduction for closing value at end of 1996-97

70-10(4)    
If:

(a) former subsection 36(1) of the Income Tax Assessment Act 1936 applies to the disposal, or would have if it had occurred before 1 July 1997; and

(b) the item ' s value was taken into account at the end of the 1996-97 income year under former Subdivision B (Trading stock) of Division 2 of Part III of the Income Tax Assessment Act 1936 ;

you can deduct for the income year of the disposal the item ' s value as so taken into account.

Note:

This deduction offsets the effect of the item ' s value not having been taken into account under Subdivision 70-C of the Income Tax Assessment Act 1997 at the start of the income year of the disposal.