Update on Tax Concessions for Donating Trading Stock

A temporary tax concession related to donated trading stock has now become a permanent feature following the enactment of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024, effective from 1 April 2024.

Previously, businesses that donated trading stock faced deemed income equal to its market value. This rule resulted in businesses being taxed on a deemed profit margin, even though no actual cash was received.

Initially introduced to combat tax avoidance by addressing instances where sole traders used trading stock for personal purposes, the provision was temporarily modified in March 2020. This change allowed businesses to donate trading stock to donee organisations (such as charities) and public authorities without triggering deemed income. Additionally, businesses could claim a deduction for the cost of the donated stock, encouraging donations during the Covid pandemic, such as hand sanitisers to hospitals or consumables to food banks.

For donations to non-associates that were neither donee organisations nor public authorities, the concession resulted in deemed income equal to the cost of the stock, essentially having a net nil impact on taxable income. This concession was extended in early 2023 due to adverse weather events and was set to expire on 31 March 2024.

The new legislation makes a significant change by permanently amending the deemed market value provision. From 1 April 2024, no deemed income will arise when trading stock is donated to a donee organisation. However, the rules become more complex if the donation is not to a donee organisation. In such cases, deemed income based on the market value of the stock will only be triggered if:

• The stock is disposed of to an associated person.
• A person takes it for personal consumption.
• The stock is not disposed of in the ordinary course of business for the purpose of deriving assessable or excluded income.

The distinction regarding ‘ordinary course of business’ is crucial and may seem counterintuitive. For example:

• If a supermarket chain makes a one-off donation of groceries to families in need due to a weather event, deemed income will arise.
• If the same supermarket provides groceries as part of a routine marketing or promotional campaign, no deemed income will be triggered.

While the amendment is a positive development for donations to donee organisations, the limitations highlighted by the weather event example suggest it may not fully address all scenarios.