Trading stock

Question 1

can Foreign excahnge contracts or Foreign currency option contracts be regarded as trading stock?

Answer 1

s1 of the ITA
- they are excluded from the trading stock definition

Question 2

Does foreign exchange gains and losses affect your cost of trading stock?

Answer 2

s22(3) of the ITA
- excludes any exchange difference relating to the acquisiton of such trading stock

Question 3

What happens when you someone relieves you of the debt you owe in terms of trading stock?

Answer 3

• you would have received a purchases or a opening stock deduction
• you would have removed all the VAT components
• then you would calculate the value of the debt benefit you are receiving (remove the VAT)
• reduce the opening stock or purchases deduction for stock still on hand at the end of the year
• then allocate the rest of the debt benefit to the stock that has been sold and reduce the deduction received for those purchases or opening stock deduction
• don’t forget to include the income from the sale of all those trading stock items