Issue
On ceasing business, does the taxpayer stop holding an item as trading stock, for the purposes of section 70-110 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The taxpayer stops holding an item as trading stock, for the purposes of section 70-110 of the ITAA 1997.
Facts
The taxpayer, a sole trader, held certain items as trading stock of his business.
The taxpayer ceased carrying on his business in the 2001 tax year, but continues to solely own these item (these items are not livestock).
Reasons for Decision
Section 70-110 of the ITAA 1997 applies if a 'taxpayer stops holding an item as trading stock but still owns it'.
The definition of trading stock in section 70-10 of the ITAA 1997, applies from 1 July 1997 and includes a requirement that an item be held 'in the ordinary course of business' (this was not part of the definition of trading stock in section 6 of the Income Tax Assessment Act 1936). On ceasing business, an item is no longer held 'in the ordinary course of that business'. Therefore, the taxpayer stops holding these items as trading stock.