Monday, March 19 2018
If you are operating a small business and at the end of the income year you estimate that your trading stock's value has not changed by more than $5,000, remember (especially if you are new to business) that you can choose not to conduct a formal stocktake.
By making a decision to do this, you will not be required to account for the changes in the trading stock's value. The estimate you use to make this decision (known by the ATO as an "election" to use the "simplified trading stock rules") will be deemed to be reasonable by the ATO if either:
A small business will need to use the general trading stock rules if the difference in trading stock value has varied by more than $5,000. The general trading stock rules are sketched out a little more below but ask us if you need further guidance.
And another reminder in case you are indeed riew to business and tax - an increase in trading stock value over the year is assessable income, while a decrease is an allowable deduction. Again, ask this office for more details if you need it.
The general rules
The general trading stock rules apply if the value of trading stock changes by:
(A business can choose to do a stocktake and use the general trading stock rules even if you are eligible to use the simplified trading stock rules.)
Using the general trading stock rules, you must do an end-of-year stocktake and record the value of all trading stock on hand at both:
It should come as no surprise if it is found that the value of stock at the end of an income year is generally the same as its value at the start of the next income year. However if for some reason:
Where a business starts during an income year, the total value of stock on hand at the end of that year is included in assessable income.
Using stock for your own purposes
If, as the business owner, you take an item of trading stock for your private use, you need to:
Alternatively, stock can be valued by:
If your enterprise is in primary production and you slaughter livestock for your own consumption, it must be accounted for as though it was disposed of at cost.