Stolen, spoiled or obsolete stock

You must complete a final stocktake to identify any stolen, obsolete or spoiled stock before accounting for what remains on hand when you cease trading. Stolen, spoiled or obsolete stock is effectively ‘wastage’ that can still be claimed as a deduction, if it was purchased in the same income year.

Stock on hand when you cease trading

Generally, the principles applying to trading stock are simple. Any trading stock on hand when you cease trading must be brought to account as income; effectively reversing or cancelling out, in full or in part, any corresponding deduction the business was or has become entitled to, and also potentially producing additional taxable income.

What must be accounted for as assessable income depends on who receives the trading stock when the business ceases trading and if they can apply them for personal use. Normally, a sole trader taking trading stock for personal use needs to include its cost in assessable income because it’s taken to have been sold to someone else at cost. 

If the trading stock is taken for personal use by one or more partners (but not all the partners) in a partnership, it’s included in the assessable income of the partnership generally at market value. However, if all the partners take it for personal use, it’s included in assessable income of the partnership at cost. 

Companies and trusts cannot normally apply trading stock for their own use. Companies and trusts will need to account for fringe benefits for any trading stock that effectively passes to a director or employee prior to the cessation of trading.