Home – New Forums Money matters claiming stock as a business expense?

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  • #983844
    FlamedTofu
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    Hello all,

    I have already spoken to an accountant about this, but i wanted some clarification on if what he said is right or not.

    I was told that it is possible to claim the entire cost of stock as a business expense ( as long as the total order was under $6000) and then just declare the entire sale price for each sale as a Profit. Is this legal? or do I need to find a new accountant?

    Cheers

    #1144568
    CindyK
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    Hi FlamedTofu,

    To be fair to the accountant who provided the advice, assuming he/she is indeed a qualified accountant and tax agent, we would need more context of the conversation and why it was worded in this way. On face value, it seems a very odd thing to say and not accurate so I would suspect there was more in the conversation.

    Overall, if you can’t get good claification from your accountant to help you understand, you might need to think about looking around, but I wouldn’t change on just one example.

    #1144569
    Burgo
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    If you have already paid for the stock then it is a business deduction.
    When you sell the stock that is income

    #1144570
    Divert To Mobile
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    Hi FlamedTofu,

    Regardless of how you record the outlay COGS or expense the end profit figure will be the same. Doing it this way is not best book keeping practice. If you do decide to do it that way it will adversely affect your ability to analyze how your business is performing and probably make it impossible to sell.

    Steve

    #1144571
    FlamedTofu
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    The context was i asked if that method was possible, and they confirmed it was,I’m not interested in bagging out the accountant I just want to make sure i comply with the law.

    What methods do people claim their stock expenses?

    In my case i buy a load of stock in one transaction in an overseas currency, each individual item has a slightly different buy price, there are then other fees added to the entire order. Working out the individual buy price and then percentage of the fees to then convert it into aud seems less accurate than claiming the entire amount converted into aud as shown on the bank statement.

    #1144572
    James Millar
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    Some light on this for you.

    1. Generally for tax purposes you need to account for the movement in your trading stock in any given year (it is also a cornerstone of determining your cost of sales for accounting purposes). Section 70-35 of the ITAA 97 essentially prescribes that you receive a deduction your opening trading stock (if any) and then you are assessed as income on the your closing stock (if any). So in effect you only receive a deduction for your cost of sales in that year and you do not receive a deduction for unsold trading stock at year end.

    2. There are simplified trading stock concessions available for small businesses (less than $2m turnover). If your trading stock value changes by less than $5k in a year then you do not have to account for the change in value. This is optional and possibly what your accountant was referring to (although the $6k reference seems odd. Maybe he was using and approx number for you. It would $5500 inc GST).

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
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