16 Mar Are you declaring personal use of business trading stock?
Have you ever taken home an item of your business’ trading stock for your own personal use, or use by your family members? This is common in many businesses such as bakeries, butchers and cafés, but it does have some tax consequences.
“Trading stock” means anything that you hold in the business for the purposes of manufacture, sale or exchange. If you use any trading stock for personal use, you need to declare this in your business’ tax return. This is because you are treated as if you sold the trading stock to someone else, and the value of that stock is therefore assessable income.
The ATO accepts two different ways of accounting for this stock: an estimate based on ATO guidelines or an actual value using your own records.
ATO estimates. As record-keeping in these circumstances is often difficult or impractical, the ATO publishes some estimates of personal use for selected industries. The ATO’s estimates for the 2018-2019 income year range from $4,260 for an adult/child over 16 years for a mixed business to $400 for a child four to 16 years old for a fruiterer/greengrocer. The following example shows how these estimates can be used when preparing a business’ tax return.
Susan runs a takeaway business and often brings home various food items for her family to eat. It is not always practical to record the value of every item she brings home. Her family includes herself, her husband and child aged 11 years. When preparing her business’ tax return, she uses the ATO estimates for takeaway shops for two adults (2 x $3,430) and one child (1 x $1,715), a total of $8,575. She declares this as assessable income in her return.
Actual value. Alternatively, a business may declare the actual value of goods taken from stock. This option would suit businesses who can show that they took a lesser amount for personal use than the ATO’s estimates. This option requires thorough record-keeping as you will need to keep details of the date; a description of what was taken; why it was taken; and the value of the item (excl. GST). Declaring private use of trading stock is just one aspect of the trading stock tax rules.
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