If the trust is a small business entity choosing to use the simplified trading stock rules, refer to Small business entities below.
All other businesses
Show at label D the total value of all trading stock on hand at the end of the income year. Include floor plan stock and work in progress manufactured goods. The amount at this label is the value calculated for income tax purposes under Section 70-45 of the ITAA 1997.
If the trust is registered for GST, the value of closing stock (other than items the supply of which was not a taxable supply) should not include an amount equal to the input tax credit that would arise if the trust had acquired the item solely for business purposes at the end of the income year. Input tax credits do not arise for some items of trading stock, such as shares.
Do not include any amount that represents closing stock of a business that ceased operations during the year. This amount should be shown at Total business income item 5.
Closing stock action code
Select the appropriate closing stock code from the list. Where more than one method is used, use the code representing the greatest claim. If either a closing stock amount or code is entered, both must be entered.
Where a Business Income Schedule (B) is attached to a return for an entity that is ceasing to trade and nil closing stock exists, the tax agent should check the main return and remove any action code that may have integrated to it from the attached schedule B.
Valid action codes are:
C - Cost value
M - Market value
R - Replacement value
Small business entities
Small business entities only need to account for changes in the value of trading stock if:
the value of stock on hand at the start of the income year, and
a reasonable estimate of the value of stock on hand at the end of the income year, varies by more than $5,000.
Small business entities that wish to do so can still choose to conduct a stock-take and account for changes in the value of trading stock:
If the difference between the value of opening stock and a reasonable estimate of closing stock is more than $5,000 the trust must account for the change in the value of trading stock, see step 2 below.
If the difference is not more than $5,000, see step 1.
If the difference referred to above is $5,000 or less and the trust chooses not to account for this difference, the closing stock value at label D is the same as the value at label C item 38 Opening stock. Do not put the reasonable estimate at label D.
If this is the trust's first year in business the value of the closing stock will be zero. Select C from the list at the CODE box.
If the difference referred to above is more than $5,000 or the trust chooses to account for the difference in trading stock, the closing stock values must be brought to account under Section 70-35 of the ITAA 1997. Refer to All other businesses for instructions on how to calculate the value of closing stock.
The trust must include in the closing stock value at label D the value of all stock on hand, regardless of whether the trust has paid for the stock.
You can use different methods of valuation to value the same item of trading stock in different income years, and you can value similar items using different methods in the same income year.
However, the opening value of an item in any income year must equal the closing value for that item in the previous income year. The trust cannot reduce the value of stock on hand by creating reserves to offset diminution of the value of stock or any other factors. Keep records showing how each item was valued.
The trust may elect to value an item of trading stock below the lowest value calculated by any of these methods because of obsolescence or other special circumstances. The value in the election must be reasonable. If an election has been made to value an item of trading stock below cost, market selling value and replacement value, then item 47 Trading stock election must be answered Yes.
If incorrect trading stock information has been included on the tax return, the trust should advise the ATO by submitting a full statement of the facts, accompanied by a reconciliation of the value of stock as returned for each income year with the values permissible under the law.
Trusts engaged in manufacturing include the value of partly manufactured goods as part of their stock and materials on hand at the end of the income year.
For information on the circumstances in which packaging items held by a manufacturer, wholesaler or retailer are 'trading stock' as defined in section 70-10 of the ITAA 1997, see Taxation Ruling TR 98/7.
Refer to Closing stock on the ATO website.