How do you value the purchase of trading stock not at arms length at less than market value?

 Author: PollyATO(Community Support)Community Support

29 May 2026

Hi @Sydol,

Section 70-20 of the Income Tax Assessment Act 1997 applies when you purchase trading stock from an associate or in a non-arm's length transaction for more than market value. When you buy trading stock for less than market value in these circumstances, different rules apply.

If you acquire trading stock for less than market value from an associate or in a non-arm's length dealing, you use the actual cost you paid as the value. The law doesn't substitute market value when you're the buyer paying less. This means your opening stock value is the amount you actually paid, not the higher market value.

You'll value this trading stock using one of the three standard methods when it becomes your closing stock:

• cost
• market selling price
• replacement value.

The market value substitution rule works differently depending on whether you're the seller or buyer. When someone sells to an associate for less than market value, the seller is treated as receiving market value. When you buy from an associate for less than market value, you're treated as paying what you actually paid.

You can value your trading stock each year under section 70-20 of the Income Tax Assessment Act 1997. Check the simplified trading stock rules to see if they apply to your business.

Reply0 likes

• Report as inappropriate