Preamble
The full 'sales value' of the lay-by sale agreement is brought to account at the date of making the lay-by sale agreement.
In a common lay-by sale agreement between the seller and the buyer, the description of the goods and the full 'sales value' of the goods are shown on the lay-by sale docket. This docket also records the deposit paid and evidences that a lay-by debt is in existence. The goods are labelled with a reference to the lay-by sale agreement and are held by the seller separately from the trading stock on hand pending full payment by the buyer.
The lay-by goods are not trading stock on hand of the seller. Taxation Ruling IT 2670 explains the meaning of 'trading stock on hand' and at paragraph 4 advises the importance of the dispositive power over all other tests (such as, for example, property or possession) in determining whether goods are trading stock on hand.
In the absence of a breach of the lay-by sale agreement, the seller no longer has dispositive power over those goods.
As the goods are not trading stock on hand of the seller, section 28 requires that this be taken into account in determining the taxable income.
If there is a breach of the lay-by sale agreement, the transaction is treated as similar to one of a return of goods by the buyer at the date of the breach and there is a cancellation of the lay-by debt owing under the agreement.
Any money forfeited by the buyer under a breach of the agreement is assessable income of the seller in the year of forfeiture.