If you sell products, counting stock at the end of the financial year can eat a weekend. For some small businesses, the ATO says you do not have to.

The simplified rules

The ATO says you may not need to do a formal stocktake if the value of your trading stock changed by $5,000 or less over the year. To use the simplified trading stock rules, you generally need to be a small business with aggregated turnover under $10 million, or a business with aggregated turnover from $10 million to under $50 million that would otherwise qualify as a small business (for income years starting on or after 1 July 2021).

You also need to compare two numbers: the value of your stock on hand at the start of the income year, and a reasonable estimate of the value at the end of it. If the difference is $5,000 or less, up or down, you can use the simplified rules.

What counts as a reasonable estimate

The ATO treats your estimate as reasonable if you keep a fairly constant level of stock and have a good idea of its value. If your stock levels move around, you can still estimate based on your records of stock purchased.

What you gain

Under the simplified rules, you do not have to do a formal stocktake or account for the change in the value of your trading stock. That saves time and avoids counting errors.

What to do

  • Record your opening stock value at 1 July each year and keep it with your tax records.
  • Estimate your closing value from purchase records and sales, and write down how you worked it out.
  • Check the $5,000 limit. If you are close, a stocktake is the safer choice.
  • Keep your purchase records so you can support the estimate if the ATO asks.
  • Check with your accountant whether the rules suit your business, particularly if your stock is growing fast.

It is a small piece of red tape relief, but only if you are eligible and keep a record of your reasoning. This is general information only.