ATO Interpretative Decision
ATO ID 2004/506 (Withdrawn)
Non Commercial Losses: Other Assets test - valuation of trading stock
FOI status: may be released
||This ATO ID is withdrawn as the interpretative issue is covered in TD 94/10
||This document has changed over time. View its history.
Status of this decision: Decision Withdrawn 8 July 2005
|CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.|
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Can a taxpayer amend a tax return, after an assessment is made, to alter the figure for closing stock by adopting a different basis of valuation to that on which the return was originally prepared for the purposes of altering the assessable income for the assessable income test in Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997)?
No. The taxpayer makes their choice of valuation method at the time the income tax return is lodged. An alteration to that choice for the purposes of Division 35 of the ITAA 1997 is not permissible once the assessment of that return has issued.
An individual taxpayer is carrying on a business activity. The taxpayer lodged an income tax return which specified a particular basis of valuation for determining the closing stock value. An assessment issued on the basis of the lodged income tax return.
The taxpayer's business expenses exceeded the assessable income for the income year for which the return was lodged.
The taxpayer did not pass the assessable income test in section 35-30 of the ITAA 1997 on the basis of the income tax return lodged.
The taxpayer did not pass any of the other tests outlined in Division 35 of the ITAA 1997, nor was the Commissioner's discretion exercised, and the taxpayer did not qualify for any of the exceptions to the operation of subsection 35-10(2) of the ITAA 1997. Consequently the business losses were deferred.
The taxpayer wants to amend the income tax return to alter the method of valuation, and thereby pass the assessable income test.
Reasons for Decision
The Commissioner has taken the position in Taxation Determination 94/10 that subsection 31(1) of the Income Tax Assessment Act 1936 (ITAA 1936) (after 1997-1998 income year Division 70 of the ITAA 1997 applies) allows a taxpayer the option of valuing each article of trading stock on hand at the end of the year of income at cost price, market selling value or the price at which it can be replaced.
The Commissioner expresses the view in TD 94/10 that the valuation option is exercised at the time the taxpayer ascertains whether or not there is taxable income. The method chosen will be evident in the taxpayer's calculation of taxable income or loss as specified in the tax return. By making the choice the taxpayer is electing what law is to be applied in ascertaining the value of trading stock, which must be taken into account in determining taxable income. The taxpayer may not, once they exercise the option, vary the election for that year of income. See Case G55 (1956) 7 TBRD 314; (1956) 6 CTBR (NS) Case 46 ; Case D95 (1953) 4 TBRD 483; (1953) 4 CTBR (NS) Case 2
The view in TD 94/10 is consistent in assessing whether an amendment should be allowed for the purposes of passing a test in Division 35 of the ITAA 1997.
Once the taxpayer chooses a method of valuing trading stock that is appropriate to the business in the tax return and the Commissioner makes an assessment of taxable income and tax payable thereon, or is deemed to have made an assessment under section 166A of the ITAA 1936, the method of valuation cannot be varied. It is at this point that the Commissioner assesses whether or not Division 35 of the ITAA 1997 applies to the circumstances set out in that tax return. The Commissioner will not accede to a taxpayer's request for an amendment to alter taxable income so that it reflects a different method of valuation. Nor will the Commissioner allow any part of an objection to an assessment that is based on the taxpayer's desire to choose a different method of valuation. This is because an assessment made in reliance on a taxpayer's chosen method of valuation, would have been made on a correct basis by applying the law properly to the facts as disclosed by the taxpayer.
Date of decision: 8 June 2004
|Year of income:||Year ended 30 June 2004|
Income Tax Assessment Act 1997
(1956) 7 TBRD 314
(1956) 6 CTBR (NS) 292
(1953) 4 TBRD 483
(1953) 4 CTBR (NS) 7
Related Public Rulings (including Determinations)
Taxation Determination TD 94/10
Taxation Ruling TR 2001/14
Taxation Ruling TR 2001/14A - Addendum
Change of valuation methods
NCL other assets test
Non commercial losses
Date of publication: 25 June 2004
|ATO ID 2004/506 (Withdrawn) history