Private ruling: Trading stock
Date of advice: 20 January 2017
Published: July 2017
Ruling period: Year ended 30 June xx - 30 June xx
Date scheme commenced: Year ended 30 June 20xx

Ruling: Q1: Will the Material supplied to Company under the Agreement constitute trading stock pursuant to section 70-10 of the ITAA 1997? | A1: Yes | Q2: Will a reasonable apportionment of the A$ upfront payment, that reflects the quantity of Material supplied to Company in an income year under the Agreement, be deductible pursuant to section 70-15 and section 8-1 of the ITAA 1997? | A2: Yes | Q3: Will the ongoing production cost payments made by Company under the Agreement be deductible pursuant to section 70-15 and section 8-1 of the ITAA 1997 on the basis they are incurred in connection with acquiring items of trading stock within the meaning of Division 70? | A3: Yes

Relevant facts and circumstances: The Australian resident taxpayer Company entered into an Agreement with a third party producer for the supply of certain types of Material produced by the producer out of natural resources that the producer has rights over. The supply of the Material will be delivered regularly (specified cycle) over the course of Agreement which is estimated to run a number of years according to the party's estimates of the availability of the resource and production capability. The Agreement is for an indeterminate, unascertained and unquantifiable amount of Material to be delivered. There is no maximum nor minimum volume specified to be delivered. As consideration for the Material to be supplied, under the Agreement the Company paid (a) an up-front amount (which is not refundable or adjustable for volume of Material actually delivered) plus (b) will pay a share of the producer's ongoing production costs which will be invoiced each specified cycle time. The Agreement also provides the Company with certain step-in and pre-emptive rights and some oversight of the producer's operations. The Company's stated purpose for acquiring this Material is to on-sell and the Company will include the income from sale in its assessable income.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 70-10 | Income Tax Assessment Act 1997 section 70-15