The information below is most relevant to medium to large business with significant stock purchase/holdings, this is only a summary of the original ruling. This ruling has a significant impact on timing of certain revenue recognition.
Trade incentives that relate directly to the purchase of trading stock
Trade incentives that relate directly to the purchase of trading stock are treated as a reduction in the cost of acquiring the trading stock for the buyer for the purposes of section 8‐1 (the general allowable deduction provision) and Division 70 (which contains the trading stock rules).
Similarly, trade incentives that relate directly to the sale of trading stock will be regarded as a reduction of the sale proceeds for the seller for the purposes of section 6‐5 (the general assessable income provision) and Division 70.
Trade incentives that are subject to condition that has not been satisfied at the
time of the purchase
In the hands of a buyer, an incentive that is subject to a condition that has not been satisfied at the time of the purchase:
1. will not be directly related to the purchase of trading stock;
2. does not reduce the cost of acquiring trading stock for a buyer; and
3. will be ordinary income of the buyer and derived in the income year in which it is earned (where
the buyer is an accruals basis taxpayer) or in the year it is received (if the buyer is a cash basis
taxpayer).
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