Deductions
Stocktake
A stocktake is the physical count and valuation of the goods a business holds at a point in time, usually at year end, to work out the value of trading stock.
A stocktake is a count of all the stock your business has on hand, along with a valuation of each item. Most businesses do one at the end of the income year, on 30 June for most, but many also do regular counts during the year to manage inventory and spot theft, damage or errors. For tax, the year-end figure is the one that matters, because the value of closing stock affects taxable income.
The process is straightforward but needs care. You count each product, record the quantity, and apply a unit value according to the method you have chosen, being cost, market selling value or replacement value. Damaged or obsolete items should be noted separately, since they may be worth less than normal stock. Counting is easier when stock is organised and when sales are paused or recorded carefully during the count.
The stocktake feeds directly into your income tax figures through the trading stock rules. Closing stock from the stocktake becomes next year's opening stock, so errors can carry over and distort profit across two years. A count that is too low increases your deduction this year but overstates profit next year, which is why consistency and accuracy matter.
Small businesses may be able to skip a full stocktake in a year if the change in stock value between opening and closing is within a threshold set by the ATO, and they can reasonably estimate it. If the difference could be larger than the threshold, a proper count is needed. Check ato.gov.au for the current threshold. Even when you skip a count, you should keep records supporting your estimate.
For GST, the stocktake is not itself a taxable event. However, it helps you reconcile purchases claimed as GST credits against stock actually held and sold. It can also reveal stock taken for private use, lost, or given away, which may require GST adjustments or at least explain differences between your purchases and sales records.
Common mistakes are guessing the count, forgetting stock held in other locations or with agents, and valuing stock inconsistently from year to year. Keep the count sheets, signed or dated, for five years. This is general information only, so confirm your situation with the ATO or a registered tax professional.
Worked example
On 30 June a registered homewares retailer counts 400 lamps at a cost of $35 each, 150 cushions at $12 each and 80 vases at $20 each. Closing stock at cost is (400 x $35) + (150 x $12) + (80 x $20) = $14,000 + $1,800 + $1,600 = $17,400. This GST-exclusive value is used as closing stock and becomes opening stock for the next income year.
Practical tips
- Keep dated count sheets and the valuation method used, as you may need to show them to the ATO for up to five years.
- Be consistent, because your closing stock becomes next year's opening stock and mistakes flow through two years.
- Include stock held at other locations or with agents, and note damaged or obsolete items separately.