Income tax Dates
If your business has trading stock, you must value it at the end of each income year using one of the methods below. There are specific rules for valuing livestock.
Valuing trading stock can be complicated, and we recommend you speak to a tax professional.
Methods for valuing trading stock
Generally, the method you use for your financial statements is the method you use for tax purposes. Each of these methods has specific rules and criteria that you must follow.
Cost
The value is the cost of the trading stock. This includes all costs like purchase price, import duties, manufacturing costs, inwards freight cost and overheads.
Discounted selling price
The value is the retail selling price, minus the normal gross profit margin for a department or category of goods. There are special rules for retailers with a turnover of $1 million or less.
Replacement price
The value is the price that you would pay to replace the items on the last day of the income year, or if there is no such value then the last price that you paid for it during the year.
Market selling value
The value is the price you would expect to receive from the sale of the trading stock. You must be able to provide evidence of this price. You can only use this method if the market selling value is less than cost.
Valuing livestock
There are specific rules for valuing livestock in subpart EC of the Income Tax Act 2007. These rules are reviewed in 'Herd scheme elections' on our Tax Policy website.
Herd scheme elections (Tax Policy)
Cost-flow methods for stock purchased at different prices
If you are using the cost method to value trading stock and you purchased stock at different prices, you can use two cost-flow methods for remaining stock at the end of the year. You must be able to identify the stock separately. The methods are:
- the ‘First–In–First–Out’ cost method (FIFO)
- the ‘Weighted Average Cost’ method (WAC).
If the stock cannot be identified separately, you can only use one of the methods.
For tax purposes, your business must also use the same cost–flow method that you use in your financial statements.
Low-turnover traders
You are a low-turnover trader if you have sales of less than $3 million for an income year.
There are concessionary rules for low-turnover traders under each of the 4 valuation methods described above. These can be found in the Income Tax Act 2007, section EB 13 to EB 22.
Low value trading stock
Your business may use the same closing value of trading stock as the opening value when:
- sales are less than $1.3 million for the income year, and
- a reasonable estimate of your closing stock is less than $10,000.
In this case, your business only has to value the trading stock once and you do not have to stocktake at the end of the year.