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.

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 purpose 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.

In my opinion, the interpretation of the Acting Commissioner is correct, except in the case of wheat.

I do not think that the Commissioner is required to ascertain the market value. Wheat may not have a market value for the reason that owing to the wheat pool there is no open market in Australia. In the case of wheat dispatched to the pool, if, at the time when the wheat is to be taken into account, the wheat in the pool has not been sold, then, I think, the Commissioner would be justified in treating the value of the wheat as the cost of production, as no other value is ascertainable.

If, however, the wheat crop has been purchased by the British Government, as is the case in respect of one or two harvests, then, assuming the purchase was made prior to the time when the wheat had to be taken into account, I think the value of the wheat is the price the farmer will receive for the wheat at the nearest railway station or place of delivery as the result of that purchase.

[Vol. 15, p. 271]