Skip to main content

Trading stock is any property a business owns, that they intend to sell or exchange. The business must value their trading stock at the end of each income year.

Examples of trading stock

These are examples of trading stock:

  • anything that is produced or manufactured to be resold
  • partly completed work that would be trading stock if completed
  • materials kept to produce or manufacture trading stock.

The following items are not trading stock:

  • assets that have been depreciated
  • consumable aids (items that are used in the manufacturing process, but do not form part of the finished product)
  • spare parts not held for resale
  • land
  • financial arrangements.

Taxing trading stock

The opening value of trading stock in an income year is deductible, and the closing value of trading stock in the income year is assessable.

The opening value of trading stock in a year must generally be the same as the closing value of the previous year.

Valuing trading stock

You must value your trading stock at the end of each income year using one of the methods below.

Generally, the method you use for your financial statements is the method you use for tax purposes. Each of these methods has specific rules and criteria that you must follow. 

The valuation of trading stock can be complicated, and we recommend you speak to a tax professional.


The value is the cost of the trading stock. This includes all costs like purchase price, import duties, manufacturing costs, inwards freight cost and overheads.

Discounted selling price

The value is the retail selling price, minus the normal gross profit margin for a department or category of goods. 

There are special rules for retailers with a turnover of $1 million or less. 

Replacement price 

The value is the price that you would pay to replace the items on the last day of the income year, or if there is no such value then the last price that you paid for it during the year.

Market selling value

The value is the price you would expect to receive from the sale of the trading stock. You must be able to provide evidence of this price. You can only use this method if the market selling value is less than cost. 

Cost-flow methods

If you are using the cost method to value trading stock and you purchased stock at different prices, you can use two cost-flow methods for remaining stock at the end of the year. You must be able to identify the stock separately. The methods are:

  • the ‘First–In–First–Out’ cost method (FIFO)
  • the ‘Weighted Average Cost’ method (WAC). 

If the stock cannot be identified separately, you can only use one of the methods. 

For tax purposes, your business must also use the same cost–flow method that you use in your financial statements.

Low-turnover traders

You are a low-turnover trader if you have sales of less than $3 million for an income year.

There are concessionary rules for low-turnover traders under each of the valuation methods described above. These can be found in the Income Tax Act 2007, section EB 13 to EB 22.

Low value trading stock 

Your business may use the same closing value of trading stock as the opening value when:

  • sales are less than $1.3 million for the income year, and 
  • a reasonable estimate of your closing stock is less than $10,000. 

In this case, your business only has to value the trading stock once and you do not have to stocktake at the end of the year.

Disposing of trading stock at below market value

If you dispose of trading stock at below market value, it's usually counted as being sold at market value for tax.

However, in some situations you can use the discounted or zero value amount.

Disposals of trading stock below market value

Specific situations

There are rules for the treatment of trading stock in certain situations, including:

  • The valuation of livestock. See subpart EC of the Income Tax Act 2007. The rules are reviewed in 'Herd scheme elections' on our Tax policy website.
  • Excepted financial arrangements held as trading stock (for example shares, emission units).
  • Disposal of business assets that include trading stock.

Herd scheme elections (Tax Policy)

Buying or selling business assets or shares

Tax technical information

For more information, see the following items on our Tax technical website.

QB 14/01: Income tax - adjustments for trading stock (including raw materials) taken for own use or consumption

IS 14/03: Income tax – Consumable aids

BR Pub 14/08: Income Tax - Timing of disposal and derivation of income from trading stock

COVID-19 tax relief for donations of trading stock, Tax Information Bulletin Vol 33 No 6 (July 2021): 62

Trading stock, Tax Information Bulletin Vol 11 No 9 (October 1999): 15, 16


Last updated: 08 Jul 2024
Jump back to the top of the page