Trading stock taken for private use – the latest amounts from the ATO revealed

The trading stock of a business is the lifeblood of that business. But in certain industries – for example, bakers, butchers, greengrocers, milk bars, general stores, convenience stores, restaurants, cafes and delicatessens – trading stock is often used for private or domestic purposes.

At the end of an income year, a taxpayer is required to value each item of trading stock-on-hand (including livestock) at either its cost, market selling value or replacement value, although this does not apply to obsolete stock. There is no requirement to adopt permanently any one of the three methods of valuation. A taxpayer may value closing stock at cost and, in the succeeding income year, value it at market selling value.

However, where a business owner takes an item of trading stock for their private use, they must account for it as if they had sold it and include the value of the item in their assessable income for tax purposes.

A business can keep records of the actual value of goods taken from its trading stock for own private use and report that amount. Alternatively, it can use the amounts the ATO will accept as estimates of the value of goods taken from stock. Tax Commissioner Chris Jordan usually releases these estimate figures each year.

The commissioner publishes standard values (excluding GST) that can be used by proprietors of affected businesses. Jordan has just released the figures that are for use in the 2014-15 financial year that will end on 30 June this year.

The Tax Office recognises different values may be appropriate in particular cases. If a taxpayer is able to justify a lower value for goods taken from stock than the value it determines, the lower amount may be used. Where the values are greater, the actual amount should be used.

The amounts for 2014-15 (which exclude GST) are:

With the end of the financial year approaching, it is worth noting when valuing trading stock, an amount equal to the GST input tax credit or attributed input tax credit arising on acquisition of the trading stock is disregarded in determining the cost, market selling value or replacement value of any item of trading stock. There will be no input tax credit if the supply of the stock is not a taxable supply, except if there is an attributed input tax credit.

If an item of trading stock is purchased in a foreign currency, that amount must be translated into Australian dollars in accordance with the rules in the tax law. If an item of trading stock on hand at the end of an income year is valued at cost, the value is translated at the exchange rate prevailing at the time when the item became stock-on-hand. If the item is valued at market selling value or replacement value, the value is translated at the exchange rate prevailing at the end of the income year.

Dealing with trading stock for tax purposes is fundamental for many businesses, so business owners must be sure they understand the rules.

Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.