The Acting Commissioner of Taxation has forwarded the following memorandum for advice:

The above section requires that the value of stock on hand at the beginning and end of each year shall be taken into account when ascertaining the profits of a business.

When the Act was being discussed in Committee in the House of Representatives, the present Prime Minister, as Attorney-General, stated that 'value' was intended to mean 'market value', so that a business would be taxable on any appreciation in value and would receive a deduction in respect of any depreciation in value of stock on hand.

In dealing with the values of livestock it has been found absolutely necessary to fix a value for the various classes of stock. This value represents the fair average value of the stock in average normal seasons.

It is the custom in most pastoral businesses to take stock into account first at the purchase price, if purchased, and at the end of the next subsequent year, at the standard value. In the case of natural increase, the standard value is applied as soon as the young stock is taken into account.

Income Tax Regulation 29A, Statutory Rules 1915 No. 245, represents the present practice of the Department in this respect.

In trade businesses the maximum value placed on the stock-in-trade when taken into account is the cost price until it is realised. In unsaleable lines the cost prices are marked down.

In the business of sharebroking it is also the custom to take stocks and shares into the trade account at cost price until realised, so that any profit or loss on realisation is not known until the close of the year.

In the case of wheat sent to the wheat pool, it does not appear possible to place any valuation on it because there is practically no market value for it. The only course open is to value the wheat at the estimated cost of production. This course has been taken by the Department.

The foregoing examples of values in business have been stated for the purposes of assisting in the interpretation of section 14 (a).

I am inclined to the view that 'value' in section 14 (a) may be interpreted in these cases as meaning:

1. For stock: a standard value fixed by Regulation.
2. For trading businesses: the cost price or the reduced prices at which the goods are taken into account.
3. For stocks and shares: the cost price at which the securities are valued in the trading account.

In view of the statement by the present Prime Minister as Attorney-General as to the meaning of 'value' I shall be glad of your opinion as to whether that interpretation is legally required by the wording of the section.

For the purpose of section 14 (a) of the Act, I think that 'value' has the meaning set out in the memorandum of the Acting Commissioner, and I also think that there is power under the Act to empower the Commissioner to fix standard rates for livestock.

The question has been raised as to whether different standard rates can be fixed in different localities of the Commonwealth.

The Constitution by section 51 (ii) prohibits taxation which discriminates between States or parts of a State, and by section 99 the Commonwealth is forbidden to give preference to one State or any part over another State or any part by any law or regulation of trade, commerce or revenue.

The discrimination forbidden by these sections is that where a tax is so framed that of itself, apart from the varying local conditions and circumstances, it operates differently in different localities of the Commonwealth.

The fixing of varying standards of value for livestock would not make the income tax discriminate between different localities of the Commonwealth.

The tax on an income of £500 (for example) is the same in whatever State or part of the Commonwealth it is derived. The act of the Commissioner in fixing different standard values in different localities is not intended to overcome the differing natural conditions of widely separated parts, but merely sets out in concrete form the differing conditions which geographical position and other natural agencies bring about.

Owing to natural conditions livestock in Victoria are worth considerably more than similar livestock in the North-West of Western Australia, and to fix standard values based upon these conditions is not, in my opinion, to discriminate between stock owners in Victoria and stock owners in the North-West of Western Australia.

It is merely taking into account the actual facts.
In my opinion, the practice of the Department is correct.

[Vol. 15, p. 8]