2017 Tax Planning Checklist: Stock

Stock on Hand

Review Stocktake List as at 31 May or early in June. Determine whether it is necessary to conduct any "sales" prior to 30 June.

Identify obsolete stock - if any of the stock is to be scrapped, physically scrap it prior to 30 June. Please note: whilst it might be good management practice, a small business entity is not required to undertake a stocktake for income tax purposes where the difference between the value of the original opening stock and a reasonable estimate of closing stock is $5,000 or less.

Value of Stock

Stock can be valued at different individual methods for each item of stock. Examples:
  • Cost;
  • Sales Value; or
  • Lower of Cost, Market Selling Value and Replacement Cost.
Review consumable stores to determine whether they are deductible on a purchase or usage basis. Review the level of such stocks on hand.

Stock Taking

You should conduct a detailed physical stocktake of all stock on 30 June. Retain your detailed stock sheets as part of your taxation records.

The stock records should be properly prepared showing items of stock, quantity on hand, who counted the stock, the valuation used and the extension of value.

If you are subject to a taxation audit, the stock sheets will be one of the first things that you are asked for. If they are “dubious”, it can lead to a full-scale tax audit.

If you are utilising a computerised stock system and you are conducting regular rolling stocktakes throughout the year, it may not be necessary to conduct a stocktake at 30 June - but you must retain records of your rolling stocktakes.  Please discuss this with your professional accountant.

Many businesses conduct stocktakes throughout the year and write off any missing or obsolete stock straight away.

Stocktaking creates a good chance to spruce up your business by putting slow moving items out on sale. It also enables you to tighten up on pilferage and spoilage.