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