Taking stock

Using trading stock for private or domestic purposes is common in a number of businesses, eg. bakers, butchers, greengrocers, milk bars, general stores, convenience stores, restaurants, cafes and delicatessens. As all businesses should know, this has tax consequences.

Where an individual, who carries on a business as a sole trader, takes an item of trading stock for their private use, the amount to be included in the assessable income of sole trader is an amount equal to the cost of the item.

The tax law provides special rules for valuing trading stock that may be taken by a business owner for private use.

Each year, the Tax Commissioner publishes standard values (excluding GST) that can be used by proprietors of such businesses.

The amounts the Commissioner will accept for 2010-11 (ie. from July 1, 2010 to 30 June 30, 2011) as estimates of the value of goods taken from trading stock for private use by taxpayers in certain specified industries are as follows:

The ATO also says it recognises that greater or lesser values may be appropriate in particular cases. Taxpayers may be able to justify a lower value for goods taken from stock than that shown above. In that case, the ATO says the lower amount should be used. Where the value of goods ex-stock would be significantly greater, the actual amount should be used.

So, how does this apply in practice? Here are some examples.

A baker takes several loaves of bread home for his private use. The bread is trading stock taken for private use by a person carrying on a business as a sole trader. The cost of the bread is required to be included in the assessable income of the business.

During the 2010-11 income year, the baker regularly takes home bread and cakes (trading stock) for his private use. He lives with his wife and two children aged 10 and 13.

• The baker can account for the items of trading stock taken for his private use by recording the costs of the items as he takes them over the year and include this total amount in the assessable income of the business for the 2010-11 income year.
• Alternatively, he can use the values in the table above to calculate the value of items taken from trading stock for private use. Therefore, the amount required to be included in the assessable income of the business in the 2010-11 income year would be $3,420.

Terry Hayes is the senior tax writer at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions .

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