Document ID: chunk:federal_register_of_legislation:C2004C00927:clause:1_13:p3
Version: federal_register_of_legislation:C2004C00927
Segment Type: clause
Provision Reference: sch 1 cl 13 (pt 3/13)
Character Range: 386288–388796

the Income Tax Assessment Act 1936.

70-25  Cost of trading stock is not a capital outgoing

  An outgoing you incur in connection with acquiring an item of *trading stock is not an outgoing of capital or of a capital nature.

Note: This means that paragraph 8-1(2)(a) does not prevent the outgoing from being a general deduction under section 8-1.

70-30  Starting to hold as trading stock an item you already own

 (1) If you start holding as *trading stock an item you already own, but do not hold as trading stock, you are treated as if:
 (a) just before it became trading stock, you had sold the item to someone else (at arm's length) for whichever of these amounts you elect:
 • its cost (as worked out under subsection (3) or (4));
 • its market value just before it became trading stock; and
 (b) you had immediately bought it back for the same amount.

Example: You start holding a unit of depreciable plant as part of your trading stock. You are treated as having sold it just before that time, and immediately bought it back, for its cost or market value, whichever you elect. (Subdivision 42-F provides for the consequences of selling depreciated property.)

 The same amount is normally a general deduction under section 8-1 as an outgoing in connection with acquiring trading stock. The amount is also taken into account in working out the item's cost for the purposes of section 70-45 (about valuing trading stock at the end of the income year).

Note: Depending on how you elect under paragraph (1)(a), the sale may or may not give rise to a capital gain or a capital loss for the purposes of Part IIIA (Capital gains and capital losses) of the Income Tax Assessment Act 1936. It does not if you elect to be treated as having sold the item for what would have been its cost: see subsection 160ZB(7) of that Act. However, it can if you elect market value.

When you must make the election

 (2) You must make the election by the time you lodge your *income tax return for the income year in which you start holding the item as *trading stock. (If you do not make the election by then because you do not realise until later that you started to hold the item as trading stock, you must make the election as soon as is reasonable after realising that.)

  However, the Commissioner can allow you to make it later (in either case).

How to work out the item's cost

 (3) The item's cost is what would have been its cost for the purposes of section 70-45 (about valuing trading stock at the end