Private ruling: Trading Stock - notional disposal
Date of advice: 24 March 2026
Published: 18 May 2026
Ruling period: Income year ending 30 June 20XX | Income year ending 30 June 20 XX

Ruling: Q1: Can an election under subsection 70-100(4) of the Income Tax Assessment Act 1997 (ITAA 1997) be made by Partner A and Partner B to treat the items of trading stock proposed to be disposed of to give effect to the Partition Agreement dated X October 20XX as having been disposed of for what would have been their trading stock value on the day of disposal? | A1: Yes.

Relevant facts and circumstances: Partner A was established in 20XX. Partner B was established in 20 XX. Since their respective establishment, both Partner A and Partner B have separately carried on a business of property development. Partner A and Partner B established a partnership (the Partnership) on equal (50/50) terms. The Partnership was: • issued a tax file number by the ATO on X April 20XX; • registered for GST by the ATO on X April 20XX; and • issued a record of registration for a business name by ASIC on X April 20XX. A contract for the sale of the Property was entered into between the vendors and Company C on X June 20XX. Company C (trustee for the C Trust, a unitholder in each of Partner A and Partner B) made a nomination on X April 20XX nominating Partner A and Partner B (in the capacity of partners) as the Buyer under the contract for sale. The contract for the sale of the Property was subsequently settled by Partner A and Partner B on X September 20XX, as tenants in common in equal shares. On X October 20XX (shortly after settlement of the contract for the sale of the Property), Partner A and Partner B executed a Partition Agreement pursuant to which it was agreed that the partners shall arrange for 2 commercial buildings to be erected on the Property and, upon registration of a proposed Plan of Subdivision, Partner A will transfer its interest in Lot 1 to Partner B and Partner B will transfer its interest in Lot 2 to Partner A. The Partition Agreement acknowledges that the Property was acquired with the intention that Partner B would be registered as the proprietor of Lot 1 and Partner A would be registered as the proprietor of Lot 2. Construction for the development of the 2 commercial buildings on the Property began on X June 20XX and the Plan of Subdivision was lodged on X April 20XX. By the time construction of the buildings had ended on X September 20XX, subdivision approval had already been received (on X September 20XX). Occupancy permits in respect of each building had also been procured in September 20XX. The commercial buildings on each Lot are intended to function independently, are capable of being used separately and are nearly identical in terms of gross floor area, layout, construction quality, design and fit-out specifications. They each include a large warehouse space, office areas, lunchrooms, a kitchenette, bathrooms, and have their own driveways and carpark spaces. Each Lot is also nearly identical in land size. The minor discrepancy between Lots 1 & 2 in terms of land size and gross floor area is due to the fact that the rear boundary is not perpendicular to the other boundaries. As at X March 20XX, documentation for partitioning had been submitted to the State Revenue Office for assessment. As a consequence of the proposed partition, Partner A's 50% interest in Lot 1 will be transferred to Partner B and Partner B's 50% interest in Lot 2 will be transferred to Partner A such that each partner will continue to hold a 100% interest in a respective Lot. As a result of both the buildings being identically designed and the subdivision allocating equal land size as far as practical, the partners have determined that the Lots have equivalent value and consideration for the respective transfers will be satisfied by way of mutual set-off, such that no monetary payment will occur. Partner A and Partner B will hold their respective Lots as trading stock of their individual property development business for intended sale when deemed commercially appropriate. The partnership between the 2 trusts endures as it seeks further property development opportunities. Assumptions For the purposes of paragraph 70-100(6)(c) of the ITAA 1997, the value of the items of trading stock on the day of their disposal will be less than their market value on that day.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 70-10 | Income Tax Assessment Act 1997 subsection 70-100(1) | Income Tax Assessment Act 1997 subsection 70-100(2) | Income Tax Assessment Act 1997 subsection 70-100(3) | Income Tax Assessment Act 1997 subsection 70-100(4) | Income Tax Assessment Act 1997 subsection 70-100(5) | Income Tax Assessment Act 1997 subsection 70-100(6) | Income Tax Assessment Act 1997 paragraph 70-100(6)(a) | Income Tax Assessment Act 1997 paragraph 70-100(6)(b) | Income Tax Assessment Act 1997 paragraph 70-100(6)(c) | Income Tax Assessment Act 1997 paragraph 70-100(6)(d) | Income Tax Assessment Act 1997 subsection 70-100(7) | Income Tax Assessment Act 1997 subsection 70-100(8)

Reasons for decision: Summary: All subsequent legislative references are to the ITAA 1997. An election under subsection 70-100(4) can be made by Partner A and Partner B to treat the items of trading stock proposed to be disposed of to give effect to the Partition Agreement dated X October 20XX as having been disposed of for what would have been their trading stock value on the day of disposal. | Detailed Reasoning - Detailed reasoning: Trading stock is defined in section 70-10 to include anything produced, manufactured or acquired that is held for the purposes of manufacture, sale or exchange in the ordinary course of a business. Taxation Determination TD 92/124 provides that land is treated as trading stock for income tax purposes if it is held for the purpose of resale and a business activity which involves dealing in land has commenced. Subsection 70-100(1) provides: An item of trading stock is treated as having been disposed of outside the ordinary course of business if it stops being trading stock on hand of an entity (the transferor ) and, immediately afterwards: (a) the transferor is not the item's sole owner; but (b) an entity that owned the item (alone or with others) immediately beforehand still has an interest in the item. Prior to the partition, Partner A and Partner B each hold a 50% interest in Lots 1 and 2 as partners. Lots 1 and 2 are trading stock on hand of the Partnership on the basis that the Partnership is carrying on a business activity which involves dealing in land and the Lots are held for the purpose of resale. After the partition, Partner B will have a 100% interest in Lot 1 and Partner A will have a 100% interest in Lot 2. Lots 1 and 2 will therefore stop being trading stock on hand of the Partnership (the transferor) and, pursuant to subsection 70-100(1) will be treated as having been disposed of outside the ordinary course of business on the basis that immediately afterwards: (a) the Partnership will not be the sole owner of Lots 1 and 2; but (b) an entity that owned Lot 1 (alone or with others) immediately beforehand (i.e. Partner B) will still have an interest in Lot 1 and an entity that owned Lot 2 (alone or with others) immediately beforehand (i.e. Partner A) will still have an interest in Lot 2. The consequences of treating Lots 1 and 2 as having been disposed of outside the ordinary course of business (as per subsection 70-100(1)) is set out in subsections 70-100(2) and (3). That is: • the Partnership's assessable income will include the market value on the day Lots 1 and 2 stop being trading stock on hand of the Partnership; and • Partner B and Partner A (as the transferees) are treated as having bought Lot 1 and Lot 2 respectively for the same value on that day. However, an election can be made pursuant to subsection 70-100(4) to treat the item of trading stock as having been disposed of for what would have been its value as trading stock of the transferor on hand (rather than for its market value) if the year of income had ended on the day it stopped being trading stock on hand of the transferor. Subsection 70-100(6) provides that the election under subsection 70-100(4) can only be made if: (a) immediately after the item stops being trading stock on hand of the transferor, it is an asset of a business carried on by the transferee; and (b) immediately after the item stops being trading stock on hand of the transferor, the entities that owned it immediately beforehand have (between them) interests in the item whose total value is at least 25% of the item's market value on that day; and (c) the value elected is less than market value; and (d) the item is not a thing in action. Paragraph 70-100(6)(a) is satisfied as immediately after Lots 1 and 2 will stop being trading stock on hand of the Partnership, Lot 1 will be an asset of a business carried on by Partner B individually and Lot 2 will be an asset of a business carried on by Partner A individually. Paragraph 70-100(6)(b) is satisfied as immediately after Lots 1 and 2 will stop being trading stock on hand of the Partnership: • Partner B, being an entity that owned Lot 1 together with Partner A immediately beforehand, will have a 100% interest in Lot 1 (i.e. an interest whose value is at least 25% of Lot 1's market value on that day); and • Partner A, being an entity that owned Lot 2 together with Partner B immediately beforehand, will have a 100% interest in Lot 2 (i.e. an interest whose value is at least 25% of Lot 2's market value on that day). For the purposes of the ruling, it is assumed that the value elected will be less than the market value and paragraph 70-100(6)(c) is satisfied. A thing in action is not defined in the ITAA 1997 but it is intended to have the same meaning as a 'chose in action'. The general law meaning of a chose in action includes intangible assets such as shares, debentures or company securities. Paragraph 70-100(6)(d) is satisfied as neither Lot 1 nor Lot 2 is a thing in action. As each of paragraphs 70-100(6)(a) to (d) will be satisfied, an election can be made pursuant to subsection 70-100(4), subject to subsections 70-100(7) and (8) discussed below. Under such circumstances, subsection 70-100(5) confirms that: • the value elected will be included in the Partnership's assessable income for the income year that includes the day Lots 1 and 2 stop being trading stock on hand of the Partnership; and • Partner B and Partner A (as the transferees) are treated as having bought Lot 1 and Lot 2 respectively for the same value on that day. Pursuant to subsection 70-100(7), the election under subsection 70-100(4) can only be made before 1 September following the end of the financial year in which the item stops being trading stock on hand of the transferor (unless the Commissioner allows the election to be made later). Pursuant to subsection 70-100(8), the election under subsection 70-100(4) must be in writing and signed by or on behalf of each of the entities that own the item immediately before it stops being trading stock on hand of the transferor and the entities that own it immediately afterwards.