Trading Stock and Trade Incentives

The Tax Office has released a ruling that clarifies the tax treatment for buyers and sellers of trading stock where a seller provides trade incentives to a buyer. Examples of trade incentives include upfront volume rebates, promotional incentives and bundled incentives.

If a trade incentive relates directly to the purchase of trading stock:

1. a buyer will reduce the cost of acquiring the trading stock; and

2. a seller will reduce the proceeds from the sale of the trading stock.

Conversely, where a trade incentive does not relate directly to the trading stock or depends on satisfying a condition, a buyer and seller do not need to reduce the cost of acquisition and the sale proceeds.