NB notes
Trading Stock
General
Tax on trading stock
• Cost of sales is calculated as: opening stock (s22(2)) + purchases (s 11(a))- closing stock (s22(1)) = amount deductible
(thus opening stock and purchases deducted, and closing stock added)
• Thus, there is no specific cost of sales item that is deducted, but s11(a) and s22 will result in the deduction
• The proceeds from the sale of trading stock fall within the gross income definition
Definitions
“trading stock”— (a) includes—
(i) anything produced, manufactured, constructed, assembled, purchased or in any other manner acquired by a
taxpayer for the purposes of manufacture, sale or exchange by the taxpayer or on behalf of the taxpayer;
(ii) anything the proceeds from the disposal of which forms or will form part of the taxpayer’s gross income,
otherwise than—
(aa) in terms of paragraph (j) or (m) of the definition of “gross income”;
(bb) in terms of paragraph 14 (1) of the First Schedule; or
(cc) as a recovery or recoupment contemplated in section 8 (4) which is included in gross income in terms of
paragraph (n) of the definition of “gross income”; or
(iii) any consumable stores and spare parts acquired by the taxpayer to be used or consumed in the course of the
taxpayer’s trade (e.g. stationary used); but
b) does not include—
(i) a foreign currency option contract; or
(ii) a forward exchange contract, as defined in section 24I (1);
Par j(A) special inclusion in gross income
• Any amount received by or accrued to any person during the year of assessment in respect of the disposal of any asset
manufactured, produced, constructed or assembled by that person, which is similar to any other asset manufactured,
produced, constructed or assembled by that person for purposes of manufacture, sale or exchange by that person or
on that person’s behalf
- e.g. car manufacturer giving a car that it
normally sells, as an fringe benefit to an
employee, and then selling it later- and thus also
treated as trading stock under ii of trading stock
definition, as it is included in gross income
- Thus, when selling, will also have no CGT
consequences and will be included in GI. No
capital allowances are allowed either
- ***Refer proviso (d) to s22(8)- not recouped
Closing Stock (S 22(1))
General
• Should add back the amount of closing stock, which is thus “held and not disposed of at the end of the YOA”, to
taxable income (specifically to gross income (proviso (a)); (par (n) of GI definition)
• 22(5)- may not use LIFO method to value stock
Value:
• (a) Cost price less diminishing value through damage, deterioration, change of fashion, decrease in the market value
(as the commissioner sees reasonable)-
• Financial instruments- valued only at cost price
• Proviso (ii)- If value of items exceeds their cost price- must be ignored (shown at cost)
Trading Stock
General
Tax on trading stock
• Cost of sales is calculated as: opening stock (s22(2)) + purchases (s 11(a))- closing stock (s22(1)) = amount deductible
(thus opening stock and purchases deducted, and closing stock added)
• Thus, there is no specific cost of sales item that is deducted, but s11(a) and s22 will result in the deduction
• The proceeds from the sale of trading stock fall within the gross income definition
Definitions
“trading stock”— (a) includes—
(i) anything produced, manufactured, constructed, assembled, purchased or in any other manner acquired by a
taxpayer for the purposes of manufacture, sale or exchange by the taxpayer or on behalf of the taxpayer;
(ii) anything the proceeds from the disposal of which forms or will form part of the taxpayer’s gross income,
otherwise than—
(aa) in terms of paragraph (j) or (m) of the definition of “gross income”;
(bb) in terms of paragraph 14 (1) of the First Schedule; or
(cc) as a recovery or recoupment contemplated in section 8 (4) which is included in gross income in terms of
paragraph (n) of the definition of “gross income”; or
(iii) any consumable stores and spare parts acquired by the taxpayer to be used or consumed in the course of the
taxpayer’s trade (e.g. stationary used); but
b) does not include—
(i) a foreign currency option contract; or
(ii) a forward exchange contract, as defined in section 24I (1);
Par j(A) special inclusion in gross income
• Any amount received by or accrued to any person during the year of assessment in respect of the disposal of any asset
manufactured, produced, constructed or assembled by that person, which is similar to any other asset manufactured,
produced, constructed or assembled by that person for purposes of manufacture, sale or exchange by that person or
on that person’s behalf
- e.g. car manufacturer giving a car that it
normally sells, as an fringe benefit to an
employee, and then selling it later- and thus also
treated as trading stock under ii of trading stock
definition, as it is included in gross income
- Thus, when selling, will also have no CGT
consequences and will be included in GI. No
capital allowances are allowed either
- ***Refer proviso (d) to s22(8)- not recouped
Closing Stock (S 22(1))
General
• Should add back the amount of closing stock, which is thus “held and not disposed of at the end of the YOA”, to
taxable income (specifically to gross income (proviso (a)); (par (n) of GI definition)
• 22(5)- may not use LIFO method to value stock
Value:
• (a) Cost price less diminishing value through damage, deterioration, change of fashion, decrease in the market value
(as the commissioner sees reasonable)-
• Financial instruments- valued only at cost price
• Proviso (ii)- If value of items exceeds their cost price- must be ignored (shown at cost)
