Private ruling: Income tax - trading stock
Date of advice: 5 June 2019
Published: August 2019
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can the trading stock be transferred from two entities to a partnership be valued at cost instead of market value, using an election made under section 70-100(4) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. An election can be made under subsection 70-100(4) of the ITAA 1997 as all the conditions of subsection 70-100(6) of the ITAA 1997 have been satisfied.

Relevant facts and circumstances: The following entities own the breakdown of livestock normally pastured on a property which is owned by Person A, who is a relative of Person A and B: Entity 1 15% Entity 2 55% Entity 3 10% Entity 4 20% The livestock owned by the first three entities are managed by Entity 4, which meets all operating costs and charges a management fee. Prior to June 2017, the property was owned by Entity 3 and was transferred to Person A substantially below market value at the time. Entity 1 intended to retain their interest in the livestock including into their estate for the benefit of their beneficiaries. However, the bank, as part of their agreement to finance Person A's loan in respect of the transfer of the property required that all the livestock were to be gifted to Person A on the deaths Person A and Person B. The parties have agreed to transfer the livestock from Entity 1 and Entity 2 to Entity 3 and to elect that section 70-100(4) of the ITAA 1997 apply in relation to the transfer. The transaction meets the conditions of paragraph 70-100(6)(b) of the ITAA 1997. This will facilitate the eventual transfer of all livestock to Person A by survival.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 70-90 | Income Tax Assessment Act 1997 section 70-100