INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART III - LIABILITY TO TAXATION  

Division 2 - Income  

Subdivision B - Trading Stock  

SECTION 36   DISPOSAL OF TRADING STOCK  

36(1A)   [No application of subsec (1) 1 July 1997 onwards]  

Subsection (1) applies to a disposal of property only if the disposal takes place before 1 July 1997.

Note:

Sections 70-90 (Assessable income on disposal of trading stock outside the ordinary course of business) and 70-95 (Purchase price is taken to be market value) of the Income Tax Assessment Act 1997 deal with a disposal occurring on or after 1 July 1997.

36(1)   [Value of property assessable]  

Subject to this section, where:

(a) a taxpayer disposes by sale, gift, or otherwise of property being trading stock, standing or growing crops, crop-stools, or trees which have been planted and tended for the purpose of sale;

(b) that property constitutes or constituted the whole or part of the assets of a business which is or was carried on by the taxpayer; and

(c) the disposal was not in the ordinary course of carrying on that business;

the value of that property shall be included in the assessable income of the taxpayer, and the person acquiring that property shall be deemed to have purchased it at a price equal to that value.

Note:

If subsection (1) applies to a disposal in the 1997-98 year of income of an item that is trading stock, but not trading stock as defined in the Income Tax Assessment Act 1997 , you can deduct the item's value as taken into account at the end of the 1996-97 income year under Subdivision B (Trading stock) of Division 2 of Part III of this Act: see subsection 70-10(4) of the Income Tax (Transitional Provisions) Act 1997 .

36(2A)   [No application of subsec (3) 1 July 1997 onwards]  

Subsection (3) does not apply to a disposal of live stock that takes place on or after 1 July 1997.

Note:

Subdivision 385-E (Primary producer can elect to spread or defer tax on profit from forced disposal or death of live stock) of the Income Tax Assessment Act 1997 deals with such a disposal.

36(2)    
(Omitted by No 90 of 1952)

36(3)   [Election in case of expropriation, natural disaster, and tick control]  

Where:

(a) in consequence of:

(i) the acquisition or resumption of land under the provisions of an Act, a State Act or an Ordinance of a Territory that contains provisions for the compulsory acquisition or resumption of land;

(ii) the loss or destruction of pastures or fodder by reason of fire, drought or flood; or

(iii) the taking of a lease of land by a State for the purposes of a campaign for the eradication of cattle tick;

a taxpayer, in a year of income, disposes, by sale or otherwise, of live stock being assets of a business of primary production carried on by him in Australia; and

(b) the value of that live stock is, by virtue of subsection (1), included in the taxpayer's assessable income of that year;

the taxpayer may elect that that assessable income shall be reduced by an amount equal to four-fifths of the profit on the disposal of that live stock.

36(3A)   [Spreading of profit]  

Subject to subsection (3B), where a taxpayer has made an election under subsection (3):

(a) his assessable income of the year to which the election relates shall be reduced by an amount equal to four-fifths of the profit on the disposal of the live stock; and

(b) there shall be included in his assessable income of each of the next 4 succeeding years an amount equal to one-fifth of that profit, and the amount so included in the assessable income of any year shall, for all purposes of this Act, be deemed to be assessable income derived by the taxpayer during that year from the carrying on by him in Australia, during that year, of a business of primary production.

36(3B)   [Loss by natural disaster]  

Where the disposal is in consequence of the loss or destruction of pastures or fodder by reason of fire, drought or flood, subsection (3A) applies only if the taxpayer establishes to the satisfaction of the Commissioner that the proceeds (if any) of the disposal have been or will be applied by the taxpayer wholly or principally to the purchase of live stock, or to the maintenance of breeding stock, for the purpose of replacing the live stock disposed of.

36(4)   [Election where disposal by partnership]  

Where live stock to which subsection (3) applies is disposed of by a partnership, each partner in the partnership shall be entitled to make an election under that subsection in relation to that part of the profit on the disposal of the live stock which is included in his individual interest in the net income of the partnership.

36(5)   [Election where disposal by trustee]  

Where live stock to which subsection (3) applies is disposed of by the trustee of a trust estate:

(a) the trustee shall be entitled to make an election under that subsection in relation only to that part of the profit on the disposal of the live stock included in the net income of the trust estate in respect of which the trustee is liable to beassessed and to pay tax under the provisions of Division 6; and

(b) each beneficiary in the trust estate who is not under a legal disability and who is presently entitled to a share of the net income of the trust estate, which share includes a part of the profit on the disposal of the live stock, shall be entitled to make an election under that subsection in relation to that part.

36(6)   [Departure, death, bankruptcy, winding-up]  

Where, in any year of income, a taxpayer who has made an election under subsection (3):

(a) appears to the Commissioner to be about to leave Australia;

(b) dies;

(c) becomes bankrupt, or applies to take the benefit of any law for the relief of bankrupt or insolvent debtors, or compounds with his creditors, or makes an assignment of any of his property for their benefit; or

(d) being a company, commences to be wound up;

there shall, if the Commissioner so determines, be included, in the assessable income of the taxpayer of that year of income, any amount which would otherwise be included, in pursuance of this section, in the assessable income of any subsequent year of income, and the amount so included shall be deemed, for all purposes of this Act, to be assessable income derived by the taxpayer during that first-mentioned year of income from the carrying on by him in Australia, during that year, of a business of primary production.

36(7)   [Conditions for making of election]  

The election which a taxpayer may make under subsection (3) must be made on or before the date of lodgment of the return of income of the year in which the disposal occurred, or within such further time as the Commissioner may allow.

36(7AA)   [No application of subsec (7A) 1997/98 income year onwards]  

Subsection (7A) does not allow a deduction for the 1997-98 year of income or a later year of income.

Note:

Paragraph 70-120(2)(c) and subsection 70-120(5) of the Income Tax Assessment Act 1997 allow you to deduct the price you paid for trees on land, and associated capital expenditure, if you dispose of the trees in one of those years of income outside the ordinary course of carrying on a business.

36(7A)   [Allowable deduction where taxpayer acquired land carrying trees]  

If:

(a) a taxpayer has acquired land carrying trees; and

(b) part of the price paid for the land was attributable to the trees; and

(c) the taxpayer tended the trees for the purposes of sale; and

(d) the trees were held by the taxpayer in connection with timber operations (within the meaning of Division 10A ) for the purpose of gaining or producing assessable income; and

(e) after 9 May 1995, the taxpayer disposed of the trees (by sale, gift or otherwise); and

(f) the trees were assets of a business which is or was carried on by the taxpayer; and

(g) the disposal was not in the ordinary course of carrying on that business;

the sum of the following amounts is allowable as a deduction to the taxpayer for the year of income in which the disposal occurred:

(h) so much of the price paid by the taxpayer for the land as is attributable to the trees;

(i) so much of any other expenditure of a capital nature incurred by the taxpayer as is attributable to the acquisition of the trees.

36(7B)   [Expenditure in acquisition of trees]  

Paragraph (7A)(i) does not apply to an amount that has been allowed, or is allowable, as a deduction to the taxpayer for any year of income under a provision of this Act other than subsection (7A).

36(7C)   [Price for land greater than reasonable]  

For the purposes of subsection (7A), if:

(a) the taxpayer acquired the land in a transaction where the parties did not deal with each other at arm's length in relation to the transaction; and

(b) the price paid by the taxpayer for the land was greater than was reasonable;

the price paid by the taxpayer for the land is taken to be the amount that would have been reasonable if the parties had dealt with each other at arm's length.

36(7D)   [Expenditure in acquisition of trees greater than reasonable]  

For the purposes of subsection (7A), if:

(a) the taxpayer has incurred expenditure covered by paragraph (7A)(i) in connection with a transaction where the parties did not deal with each other at arm's length in relation to the transaction; and

(b) the amount of the expenditure was greater than was reasonable;

the amount of the expenditure is taken to be the amount that would have been reasonable if the parties had dealt with each other at arm's length.

36(8)   [Value of trading stock and profit on disposal]  

For the purposes of this section and section 36AAA :

(a) the value of any property or live stock shall be:

(i) the market value of the property or live stock on the day of the disposal; or

(ii) if, in the opinion of the Commissioner, there is insufficient evidence of the market value on that day - the value which in his opinion is fair and reasonable;

(b) the profit on the disposal of live stock shall be the amount remaining after deducting from the proceeds of the sale of the live stock or, where the live stock was disposed of together with any other assets or the disposal was otherwise than by sale, from the value of the live stock, the total of the following amounts:

(i) in respect of such of the live stock as was on hand at the beginning of the year of income - the value at which that live stock was, for the purposes of this Act, taken into account at the beginning of that year;

(ii) in respect of such of the live stock as was not on hand at the beginning of that year:

(1) in the case of live stock acquired by purchase - the purchase price of that live stock; and

(2) in the case of live stock acquired otherwise than by purchase, but not including natural increase bred by the taxpayer during that year - the amount which, under this Act, is deemed to be the purchase price of that live stock.

36(9)   [Value of ``property'']  

Notwithstanding subsection (8), the value for the purposes of this section of any property disposed of by the taxpayer after 7 April 1978 shall, if the Commissioner so determines, be such value as the Commissioner considers reasonable, having regard to:

(a) the cost to the taxpayer of the property;

(b) if, in any agreement entered into in connexion with the disposal of the property, an amount was specified as the value of the property or as the consideration received or receivable in respect of the disposal - the amount so specified;

(c) if, before the property was disposed of, an agreement or arrangement (whether or not enforceable by legal proceedings and whether or not intended to be so enforceable) was entered into, or an understanding was reached, as a result of which, at any time after the disposal took place, there has been, or there could reasonably be expected to be, a substantial reduction in the value of the property - that agreement, arrangement or understanding;

(ca) if, before the property was disposed of by the taxpayer, an agreement or arrangement (whether or not enforceable by legal proceedings and whether or not intended to be so enforceable) was entered into, or an understanding was reached, under which, or by reason of which, the person or persons who acquired the property from the taxpayer was or were under an obligation, or could reasonably be expected, to dispose of the property to another person or other persons (whether or not that other person was, or those other persons included, the taxpayer) for a consideration less than the market value of the property at the time when it was disposed of by the taxpayer - that agreement, arrangement or understanding;

(d) if the disposal of the property by the taxpayer or the acquisition of the property by the person or persons who acquired the property arose out of, or was made in the course of, a transaction, operation, undertaking, scheme or arrangement that was entered into or carried out for the purpose, or for purposes that included the purpose, of securing that a person who, if the transaction, operation, undertaking, scheme or arrangement had not been entered into or carried out, would have been liable to pay income tax in respect of a year of income would not be liable to pay income tax in respect of that year of income or would be liable to pay less income tax in respect of that year of income than that person would have been liable to pay if the transaction, operation, undertaking, scheme or arrangement had not been entered into or carried out - that transaction, operation, undertaking, scheme or arrangement;

(e) if the disposal of the property by the taxpayer or the acquisition of the property by the person or persons who acquired the property arose out of, or was made in the course of, a transaction, operation, undertaking, scheme or arrangement that the Commissioner is satisfied was by way of dividend stripping or was similar to a transaction, operation, undertaking, scheme or arrangement by way of dividend stripping - that transaction, operation, undertaking, scheme or arrangement; and

(f) any other matters that the Commissioner considers relevant.

36(10)   [Meaning of ``property'']  

A reference in subsection (9) to property shall be read as a reference to property being trading stock, standing or growing crops, crop-stools or trees which have been planted and tended for the purposes of sale.