In our previous two issues of Tax Adviser we examined the tax treatment of depreciating assets and capital works. In this Tax Adviser, we examine the tax treatment of trading stock. The tax treatment of trading stock is governed primarily by Division 70 of the ITAA 1997.

¶11.1.2 Key features

According to section 70-5, there are three key features of tax accounting for trading stock:

• gross outgoings and earnings, rather than net profits and losses on disposal of trading stock, are brought to account;
• all outgoings and earnings are on revenue not capital account (therefore, earnings are usually ordinary income and outgoings are general deductions); and
• the taxpayer must bring to account any difference between the value of trading stock on hand at the start and end of the income year.