Week 7: Trading Stock Ch 17 & Capital Write Offs Ch 16

Question 1

What is Trading Stock CH 17 about?

Answer 1

Looks at meaning of ‘trading stock’ (TS)

General treatment of TS

How to account and value TS under special provisions

Question 2

What is Trading Stock?

Answer 2

Revenue asset HELD by taxpayer fir purpose of manufacture, sale/exchange in ordinary course of business

Question 3

What can trading stock include?

Answer 3

Land held by developer

Shares held by share trader

Live stock

Question 4

What is the difference between TS and capital asset? Use an e.g.

Answer 4

fridge owned by a milk bar proprietor for storing milk = depreciating asset

milk stored in the fridge will be TS that will be dealt with under the general taxation rules.

Question 5

How do you account for trading stock?

Answer 5

Excess is assessable when closing stock > opening stock

Excess is ‘deductible’ when closing stock < opening stock

Question 6

When does trading stock become deductible?

Answer 6

In year becomes ‘on hand’

Question 7

What are the 3 factors for which a trading stock to be classified as ‘on hand’?

Answer 7

Taxpayer must have the power to dispose of the trading stock
- Farnsworth (1949) fruit

Taxpayer need not necessarily have legal ownership of the trading stock – Suttons Motors (1985)

Taxpayer need not necessarily have physical possession of the trading stock – All States Frozen Foods (1990) Goods in Transit

Question 8

Taxpayers can choose to value each item of stock on hand at the end of each income year based on:

Answer 8

Cost
Market selling value
Replacement value

Question 9

What happens if trading stock is obsolete?

Answer 9

elect alternative value

Question 10

When can capital expenditure be deductible?

Answer 10

satisfies the requirements of a specific deduction provision

Question 11

What does the Capital Write offs chapter focus on?

Answer 11

‘capital allowance regime’ in div 40 ITAA97 and

‘capital works regime’ in div 43 ITAA97.

Question 12

What is the ‘capital allowance regime’?

Answer 12

allows taxpayers deductions for the cost of ‘depreciating assets’ over the period they expect to use those assets for a ‘taxable purpose’ [¶16.2].

The regime operates subject to ‘balancing adjustment’ rules that apply where taxpayers stop holding depreciating assets [¶16.3]

and ‘pooling’ rules that allow groups of assets to be written off together as if they were a single asset [¶16.4].