Tax treatment of stock at year-end

25 March 2019 | Business

If you have stock on hand at year end, it may be deductible for tax depending on its nature and your trade.

Does it consist of items you purchased for sale or items you purchased to be used in the manufacturing process? If yes, the cost of these items are automatically included in your taxable income as part of your cost of sales calculations and no tax adjustment is required.

If the answer is no, then you may be able to claim it as a consumable in the current tax year. Please note that the principles discussed here are not applicable to farming operations.

The cost at which cost of sales should be recorded in terms of section 22 of the Income Tax Act presents the actual cost incurred to acquire the stock and bring it to its current condition and location, less any impairments/stock obsolescence. If stock was acquired at no cost, you are not entitled to a deduction from your taxable income.

If the stock you have on hand at year end constitutes consumables and spare parts (not expected to last/be held for longer than 12 months), the actual cost of such goods are deductible as expense for tax purposes in the year they were acquired in terms of section 17 (1)(a).

Consumables are items, which are not acquired for purposes of resale but with the purpose to repair equipment. Consumables and spares purchased not for resale, but for own use, fall outside the definition of closing stock. As per section 1 of the Income Tax Act, trading stock is define as “trading stock includes anything produced, manufactured, purchased or in any other manner acquired by a taxpayer for purpose of manufacture, sale or exchange by him or on his behalf or the proceeds from the disposal of which forms, or will form, part of his gross income”.

Typical examples of consumables may be things like materials used that do not form part of your final product, i.e. diesel/petrol/lubricants for machinery, stationery stock, certain packing material etc.

For accounting purposes, consumables and spares may only affect your income statement when it is actually used. However, for tax purposes, the closing balance can be deducted from your taxable income in the year it was acquired.

Please remember that this balance should be added back on the tax calculation in the subsequent year to avoid double deduction of the amounts when the amounts clear to the income statement.

Johan Nel is a partner and director at PwC Namibia. This bi-monthly tax column is published on a Monday in Market Watch.

Similar News

 

Construction pins hope on national council

1 day - 21 August 2019 | Business

Jo-Maré Duddy – The Construction Industries Federation (CIF) is “excited” about the possibility of a revised bill on a national construction council being re-tabled in...

Company news in brief

1 day - 21 August 2019 | Business

BHP pays record dividend, flags risksBHP Group, the world's biggest miner, yesterday reported its largest annual profit in five years and posted record full-year dividends,...

Company news in brief

2 days ago - 20 August 2019 | Business

BMW urges staff to narrow sales gap with MercedesBMW's new chief executive urged employees to embrace change and to find innovative ways to help the...

Kärcher Centre Taurus opens its doors

3 days ago - 19 August 2019 | Business

Windhoekers have been in for a treat since the past Saturday when the first fully fledged Kärcher Centre in Southern Africa outside of South Africa...

Uganda, Zambia deny Huawei spying allegations

3 days ago - 19 August 2019 | Business

Kampala - Uganda and Zambia on Friday denied a report that employees of Chinese telecom giant Huawei had helped them spy on political opponents.The Wall...

Vetkoek court fight postponed

3 days ago - 19 August 2019 | Business

Yanna Smith - The High Court matter in which Namib Mills has sued Bokomo Namibia for “dishonest practises in industrial or commercial matters” was postponed...

Import VAT exemption on certain feed products

3 days ago - 19 August 2019 | Business

The Namibia Agricultural Union (NAU) approached the department of inland revenue to exempt certain animal feed products by Namibian farmers from import value-added tax (VAT)....

Company news in brief

3 days ago - 19 August 2019 | Business

Sasol delays results due to project glitchSouth Africa's Sasol Ltd delayed the release of its annual financial results on Friday due to possible "control weaknesses"...

The underexplored gold mine of public relations

6 days ago - 16 August 2019 | Business

Aurelia DavidPublic relations (PR) is a function of many facets and PR practitioners are expected to evolve along with the different technologies that they require...

Leading IT innovation

6 days ago - 16 August 2019 | Business

Mariselle Stofberg Vincent Weyulu is a picture of determination. At 26 years old has proven that age is just a number when you are determined...

Latest News

N$600m down the drain

3 hours ago | Justice

Any hopes of Namibia recovering the over N$600 million lost in the Government Institutions Pension Fund (GIPF) scandal have been dashed. Prosecutor-General Martha Imalwa confirmed...

Infighting hinders progress

3 hours ago | Columns

Our traditional leaders, with all due respect, have been hogging the headlines for some time now, and mostly for the wrong reasons. Unnecessary infighting among...

Companies fail on health, safety

3 hours ago | Health

The majority of companies inspected by the labour ministry in the first quarter of this year were not in compliance with occupational health and safety...

Namibians dread worsening droughts

3 hours ago | Disasters

While Namibia is battling one of its worst droughts in history a mere 38% of Namibians say that droughts in the country have not become...

Olufuko launched tomorrow

3 hours ago | Cultural

The Olufuko Annual Cultural Festival has attracted 69 girls who have already registered with the organising committee to undergo initiation during this year's festival.The 2019...

Bolster fight against hepatitis E

3 hours ago | Health

The World Health Organisation (WHO) has again urged Namibia to boost its response to the protracted hepatitis E outbreak which has claimed the lives of...

NEPC financial woes due to...

3 hours ago | Government

Cash-strapped state-owned New Era Publications Corporation (NEPC)'s acting CEO Benjamin Jakobs has attributed the corporation's failure to account for N$33.5 million to employees' poor work...

Okapale komatukodhila taka lukilwa Ya...

3 hours ago | Transport

Otaku ka tulwa oshihongwathano shomukondjelimanguluko gwaNamibia, Herman Andimba Toivo Ya Toivo pokapale koondhila kaNdangwa.Shoka otashi ka ningwa nale nehangano lyoNamibia Airports Company (NAC) otali...

Pedalling buzz

3 hours ago | Sports

At least 100 cyclists are expected to take part in the first-ever Oshana Cycle Challenge, which will take place on Saturday. The first-of-its-kind challenge will...

Load More