The tax implications of using trading stock for personal use
3 February 2021
Certain business owners (e.g. sole traders and partnerships of individuals) may use trading stock for their own personal use. However, if you take an item of your business's trading stock for your private use, it’s important to remember to include an amount equal to the value of such trading stock withdrawn from the business in your assessable income.
Because it can be difficult to determine the value of such withdrawals, which are not necessarily the sale price of the trading stock, the Australian Tax Office (ATO) publishes a range of values each year that it will accept in different industries as estimates of the value of goods taken from trading stock for private use by such businesses. TD 2021/1 sets out the amounts for the 2020-21 income year for different industries.
If you wish to use different amounts from those suggested by the ATO, you will need to maintain proper records to substantiate these amounts.
When owners of companies or trusts withdraw trading stock for personal use, the position is different because the owners of the trusts or companies are different legal entities. In such a case, a withdrawal will be treated as a sale of trading stock outside the ordinary course of business and the market value of withdrawn stock will be included in assessable income (i.e. no application of TD 2021/1 for trusts or companies).
Furthermore, there can also be Fringe Benefit Tax (FBT) consequences (e.g. if trading stock is transferred to a shareholder who is an employee) or Division 7A consequences (e.g. if trading stock is transferred to a shareholder or associate of a shareholder by a company) for the trust or company.