Income tax: do the trading stock provisions apply to newsprint held by a taxpayer carrying on a business of producing newspapers?

Yes. Section 70-10 of the Income Tax Assessment Act 1997 (ITAA 1997) [1] defines trading stock as including anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a business.

We consider that newsprint is trading stock because it is produced, manufactured or acquired by a newspaper producer for purposes of manufacture of newspapers. This is so even if: (a) all revenue is gained from advertising (in the case of free newspapers); or (b) sales revenue from the distribution and sale of newspapers does not cover the cost of producing them.

Section 70-35 states that where a taxpayer carries on a business, opening and closing values of trading stock are taken into account in ascertaining the taxpayer's taxable income. Expenditure by a newspaper producer in purchasing newsprint is deductible under section 8-1 when the expenditure is incurred. However, section 70-35 applies to require the opening and closing values of newsprint to be taken into account in ascertaining the newspaper producer's taxable income. The overall effect of section 70-35 is to allow a deduction for the newsprint on a usage basis.