Business goods for private use? The taxman’s watching

Don’t forget the tax implications when using items taken from stock for your own use. By TERRY HAYES of Thomson Legal & Regulatory.

By Terry Hayes

For certain enterprises, it is of course tempting to dip into the business supplies for your own use. But don’t forget that the taxman may be looking over your shoulder.

It is a common practice in businesses such as bakers, greengrocers, milk bars, convenience stores, restaurants, cafes and delicatessens – but business owners need to realise that accounting for goods taken out of stock for private use has tax consequences. And these tax consequences have recently been updated by the tax office.

Goods taken out of stock by a business operator for private use have to be included in the business’s assessable income at certain values.

In many cases, keeping accurate records of transactions involving goods taken from stock for private use is problematic, to say the least. What then? The tax office acknowledges that in many cases it is difficult for accurate records to be kept of transactions involving goods taken from stock for private use.

The industries where these difficulties may arise are those where items of trading stock:

• Are used in a transformation process (for example, baking).
• Are a range of small items or ingredients, usually of low value.
• Are not suited to inventory systems.
• Are subject to a high turnover, often for cash.

In recognition of this, the Taxation Commissioner annually publishes values he will accept without the need for detailed records. He has just published the values to apply for certain businesses for the 2007-08 income year, that is, 1 July 2007 to 30 June 2008.

The amounts (which exclude GST) that the Commissioner will accept for the 2007-08 income year are listed in the following table.

In general terms, where items of trading stock are taken from a business for private use, the Commissioner requires the following records to be kept so that he can establish whether the correct amount is included in assessable income:

• The date the item is taken from stock.
• The reason why the item is taken from stock.
• The description of the item.
• The cost or the market value of the item as the case requires.

However, in light of the difficulties explained above, a business can use the amounts specified annually by the tax office without the need for keeping detailed records.

The tax office also recognises that greater or lesser values than those contained in its schedules of estimates may be appropriate in particular cases. Where business operators consider the values provided by the tax office do not reflect their particular circumstances, they can elect to maintain their own records and return the actual cost of goods taken for private use.

The values provided by the tax office should only be used as a guide. In the context of Australia’s self-assessment system in taxation, each taxpayer should be able to demonstrate that the value attributed to goods taken from stock for private use was fair and reasonable.

Taxpayers should always have regard to their own circumstances when determining the appropriate value – greater or lesser values may be appropriate in particular cases.

A business owner may be able to justify a lower value for goods taken from stock than the estimates provided by the tax office. In that case, the lower amount should be used. Where the value of goods taken from stock would be significantly greater, the actual amount (not the Commissioner’s estimate) should be used.

Where the items taken from trading stock are of such a small value that it may be difficult or unreasonable to expect records to be maintained, the Commissioner will accept that the items have been taken from trading stock for the joint personal use of all the partners in a business.

Taking goods out of stock for private use is common in a number of industries and the tax law recognises this. So does the tax office. Just make sure however, that you can justify the stance you’ve taken in accounting for those goods for tax purposes.

Terry Hayes is the senior tax writer at Thomson Legal & Regulatory , a leading Australian provider of tax, accounting and legal information solutions.

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