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Module 2 (Part F: Trading stock (Disposal of trading stock (Notional…

- - - - a deduction is only available on the purchase of trading stock when it has been acquired and is on hand. For trading stock to be on hand, the taxpayer must have the power to dispose of it
  - - - replacement value (p.157)
      - market selling value (p.157)
      - cost
        
        The costs involved in travelling to acquire stock, maintaining stock records and moving trading stock to new premises do not add to the value of the trading stock and are therefore outright
        deductions under s. 8-1.
        
        only (FIFO), average cost, retail inventory method and standard cost are accepted
        
        Purchases not at arm’s length (p.157)
        
        adjustment if not dealing at arm's length
  - - - carry on a business; and
      - satisfy the $2 million aggregated turnover test
        
        aggregated turnover include the turnover of any affiliate or entity connected with the taxpayer
        
        3 ways test can be satisfied:
        
        The aggregated turnover for the previous tax year < $2 million.
        
        The aggregated turnover for the current tax year is expected to be < $2 million, calculated at the beginning of the tax year (unless the taxpayer’s aggregated turnover for the previous two years was $2 million or more per year).
        
        The actual aggregated turnover for the current tax year < $2 million.
    - - if difference between opening value & closing value of trading of of SBE < $5 mil. No need to declare the difference
  - - - trading stock not on hand of transferor and immediately afterward:
        
        transferor is not the only one own item; but
        
        transferor still has a interest in the item.
      - special treatment for notional disposal of trading stock (p.160)
    - - market value of the stock on the date of disposal
    - - gross sale price is assessable
        as ordinary income
    - - A compensation for trading stock is treated as ordinary income is assessable under s. 6-5.
    - - item is no longer trading stock is treated as
        (a) just before it stopped being trading stock, you had sold it to someone else (at arm’s length and in the ordinary course of business) for its cost; and
        (b) you had immediately bought it back for the same amount.
- - - - A person who resides in Australia
        
        183-day test
        
        Commonwealth superannuation fund test
        
        An individual is a resident of Australia under this test if they are:
        (a) a member of the superannuation scheme established by deed under the Superannuation Act 1990 (Cwlth);
        (b) an eligible employee for the purposes of the Superannuation Act 1976 (Cwlth); or
        (c) a spouse, or a child under 16 years of age of a person covered by subparagraph (a) or (b).
        
        domicile test
        
        domicile of origin
        
        determined at birth by the location of the father’s domicile
        
        domicile of choice
        
        individuals can change their domicile if they intend to make a home indefinitely in another country
    - - incorporated in Australia
        
        carries on business in Australia and has either:
        
        its central management and control in Australia; or
        
        its voting power controlled by shareholders who are residents of Australia.
  - - - source of wages and salaries
      - source of business income
      - Interest
      - Dividends
      - Royalties
  - - - income is derived by an employee, likely cash basis;
        
        income is derived in a non-business activity in providing knowledge or skill, a cash basis; and
        
        a business activity involves the sale of trading stock, the use of circulating capital or the use of staff and equipment to produce income, accrual basis .
    - - it was held that the sale price was earned when the goods were sold and a debt was created regardless of when payment was due.
        
        A proportion of the financing charge attributable to the instalments received was also included in the income for the year
    - - income from property (rent, royalties, interest or some other item) will not have the characteristics of income until it is paid and received. Consequently, the cash basis is generally applied to income from property.
    - - income is not regarded as being derived until it is received
    - - The income was not taken to be derived until the service or goods had been supplied
    - - basic approach
      - estimated profits method
- - - - Normally, the sale of investments in capital assets would not attract the operation of s. 6-5 to bring such gains to account as ordinary income
      - where a taxpayer realises their capital assets in the course of carrying out normal business activities, such gains will be assessable under s. 6-5 as ordinary income
      - However, where the assets are acquired after 19 September 1985 and the sale is not ordinary income, then such a disposal may give rise to a capital gains tax (CGT) event and attract the CGT provisions
- - - - Table 2.4 do not apply to an entity that keeps its accounts solely or predominantly in a particular foreign currency (the ‘functional currency’).
    - - Table 2.5 - p.147
- - - - whether the contract was an ordinary business contract or whether it was of a capital nature representing an important part of the business structure of the firm.
    - - it is necessary to determine the importance of the agency to the firm’s business structure => ordinary business or capital nature
    - - any compensation or amount received as indemnity for the loss of trading stock is treated as assessable income
    - - compensation may be paid that is partly income in nature but also for damage or loss of capital assets.
      - where the compensation cannot be dissected into income and capital components, the whole amount is treated as capital.