A stocktake can be an important part of running a business. But does your business client need to do a stocktake this financial year? If they buy or sell stock, recent law changes could affect whether they need to do one this income year.

From July 1, 2016, a business will only need to do a stocktake for tax purposes at the end of an income year if either:

• the business turnover is $10 million or more
• the business turnover is less than $10 million and there is a $5,000 or more difference in stock levels at the beginning and end of the financial year (a “reasonable” estimate can be used to determine this). Does your business client need to do a stocktake this financial year?

These changes might mean that your client is not required to do a stocktake for tax purposes. But it may be beneficial for business reasons, and can help with a number of business processes such as pricing strategies, ordering processes and identifying missing stock.

If a stocktake is required, this should be done as close to the end of the financial year as practical. The following records are generally required:

• a list describing each article of stock on hand and its value
• who did the stocktake
• how and when it was done
• who valued the stock and the basis of the valuation.

When a business starts, it may be entitled to GST credits and an income tax deduction for any goods already owned and brought into the new business as trading stock. This means records will be needed of the market value or cost of these goods from the time the business starts.

Electing to do a stocktake
Note that a business client may choose to do a stocktake and include the change in value in assessable income, even if that change is $5,000 or less. Your client might make this choice if they prefer to:

• increase their assessable income in small increments over a number of years (assuming the value of stock is increasing) rather than making one large adjustment when the increase in stock value reaches the $5,000 threshold
• reduce their assessable income immediately (assuming the value of stock has decreased).

Where your client chooses to account for the change in value, the general trading stock rules apply.

Tax & Super Australia: Does your business client need to do a stocktake this financial year?