Property Treated as Trading Stock that Undergoes Change of Purpose to Holding as a Long Term Investment (Sec. 70-110 ITAA 1997)
USER
Property treated as trading stock that undergoes change of purpose to holding as a long term investment (Sec. 70-110 ITAA 1997)
Tax Genii (Thought)
I’m looking for the information about change of purpose of property in the Section 70-110 in Income Tax Assessment Act 1997.
Tax Genii (Observation)
The Income Tax Assessment Act 1997 – Sect 70.110 provides rules for situations where you stop holding an item as trading stock but still own it. According to the Act, you are treated as if you had sold the item to someone else at its cost just before it stopped being trading stock, and then immediately bought it back for the same amount. This amount is considered assessable income.
For example, if you are a sheep grazier and take a sheep from your stock for personal consumption, you are treated as having sold it for its cost. This amount is assessable income. However, you are also treated as having bought the sheep for the same amount, but it would not be deductible because the sheep is for personal consumption.
Another example is if you stop holding an item as trading stock and begin to use it as a depreciating asset for the purpose of producing your assessable income. You are treated as having sold it for its cost, which is assessable income. You are also treated as having bought the item for the same amount, which is relevant to working out the item’s cost for capital allowance purposes and the item’s cost base for CGT purposes.
This section does not apply if you stop holding an item as trading stock and immediately after you stopped holding the item as trading stock, you start to hold the item as a registered emissions unit.
Reference: Income Tax Assessment Act 1997
Tax Genii
Section 70-110 of the Income Tax Assessment Act 1997 outlines the procedures when you cease to hold an item as trading stock but still retain ownership.
Essentially, the legislation treats you as though you had sold the item at its cost value just before it stopped being considered as trading stock and subsequently bought it back again for the same price. The assessable income in this situation would be the perceived ‘sale’ cost of the item.
It’s significant to note that this section does not apply if you stop holding the item as trading stock and immediately after you stopped holding the item as trading stock, you start to hold the item as a registered emissions unit.
So, if you have property that is treated as trading stock and it undergoes a change of purpose to becoming a long-term investment, this section would govern how the transaction is treated for tax purposes.
Accountant, Technologist & Futurist