EOFY Trading Stock Decision for Developers Holding Completed Stock
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EOFY Trading Stock Decision for Developers Holding Completed Stock
Three ATO trading stock valuation methods, what each does to your stock-on-hand cost at EOFY, and how the choice shapes your refinance and second mortgage position with approximately 47 days to EOFY at publish.
Quick Answer
Completed residual stock counts as trading stock for tax. At EOFY, developers pick one of three ATO-recognised valuation methods, and that single choice shifts your closing stock-on-hand cost, your taxable income, and the equity story behind any second mortgage you raise to keep stock on the books.
The misconception that trips developers up at year-end
The most common mistake I see at the broker file is treating completed residual stock like a fixed asset that just sits on the balance sheet until it sells. The way the file reads, it is trading stock for tax, sitting under section 70 of the Income Tax Assessment Act 1997, and the closing value you book on 30 June flows directly into next year's opening value. That distinction quietly governs how lenders read the equity buffer when you raise a second mortgage to hold stock past EOFY.
This matters more in 2026 because the residual stock cohort is unusually large. With approximately 47 days to EOFY at publish, indicative window, developers carrying completed townhouses, duplexes and small apartment lots are confronting two decisions at once: how to value the stock in the books, and how to finance the hold. The valuation decision sits upstream of the finance decision, and most files I work get the order wrong.
Three valuation methods, one decision speed
The ATO's valuing trading stock page sets out three accepted methods. The cost price method captures every cost incurred to bring the stock to its current condition and location, so for a developer that means construction cost, plus soft costs, plus the proportion of finance costs that are properly capitalised. The market selling value method reflects what the stock would fetch in the normal course of business at year-end. The replacement value method is what it would cost to obtain an almost identical item on the last day of the income year.
Faster path to a locked value
- Cost price method uses figures already in your ledger
- No external valuation needed for the stocktake check
- Reconciles cleanly to the construction job cost file
- Lower disturbance to existing finance covenants
- Closing value lines up with stock-on-hand cost on trial balance
Slower path, more legwork
- Market selling value needs a comparable sales scan at 30 June
- Replacement value needs a current build-cost re-price
- Each switch creates a flow-on effect across two financial years
- Lender covenant ratios may need rerunning on the new value
- Re-papering required if the chosen method changes between items
From the file's vantage, the decision speed comes down to whether your accountant can defend the chosen method against your finance covenants. The cost price method is the path of least friction in most files I work, but it is not always the right answer where the exit strategy involves a refinance into a longer hold.
What each method does to your finance position
This is where the tax decision and the finance decision collide. A cost-price closing value typically sits below market in a tight residual-stock cycle, which softens taxable income now but compresses the book equity number a lender sees. A market-selling-value closing value lifts the equity number, but pulls taxable income forward into a year where the developer may already be carrying high BAS-validated revenue from sales of the same product type. The replacement-value choice usually sits between the two and is the least common in the files I see.
What lenders actually see at refinance is a valuation prepared for finance purposes, not the closing stock-on-hand line in the books. So the two figures can diverge legally and intentionally, with the tax line sitting low and the finance line sitting at market. The trap appears when a developer mixes methods item-by-item without telling the broker, because the lender's covenant package will read the trial balance and try to reconcile lines that were never meant to reconcile.
Inside the EOFY stocktake check for a developer
The stocktake check at year-end has three moving parts. First, the physical count of completed lots on hand at 30 June and the work-in-progress stage of any lots not yet complete. Second, the method choice for each item of stock, recorded on the workpapers. Third, the carry-forward note that locks tomorrow's opening value to today's closing value. A developer running a multi-stage project might choose cost price for stages that have settled into a hold pattern and replacement value for a newer stage where build costs have moved.
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Physical count of stock on hand at 30 June
Walk the project. Lots with practical completion certificates and individual titles registered count as completed stock. Lots still under build are work-in-progress, valued under different rules. A clean schedule is the foundation everything else sits on.
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Method choice per item, recorded on the workpapers
Cost price, market selling value, or replacement value for each completed lot. Method per item is allowed, so a staged project can run a mixed valuation across stages. The accountant signs the workpaper; the broker reads it before the next refinance brief is built.
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Carry-forward note for 1 July opening value
Closing value at 30 June becomes opening value at 1 July under ATO trading stock rules. The note that locks this carry-forward is the same record a downstream lender will ask for when reading the equity buffer behind a second mortgage.
From a broker's vantage, the cleanest stocktake checks are ones where the developer briefs the accountant on the finance plan first. If a private lending rollover is on the cards in the next 90 days, the closing value choice should be made with that lender's covenant template in mind. The EOFY whole-stack sequencing guide covers the broader calendar this decision plugs into. Where the stocktake check identifies a need to lift the book equity for a refinance, a second mortgage over residual stock can carry the gap while the senior is being repapered, varies by lender.
Residual stock is trading stock for tax, and the closing value on 30 June carries forward to 1 July. The three ATO-recognised methods, cost price, market selling value, and replacement value, each move the closing stock-on-hand cost differently, which in turn moves taxable income and the equity story a lender reads behind a second mortgage. The way the file reads, the cost price method is the fastest to defend in most developer files, but the right answer depends on whether a refinance is sitting downstream of the stocktake check. Decide the finance plan first, then choose the valuation method that fits.
Key takeaway: Brief your accountant on the post-EOFY finance plan before locking the trading stock valuation method, because the closing value carries forward and shapes the equity buffer a lender sees on the next facility.Frequently Asked Questions
Property developers do need to value residual stock at EOFY because completed but unsold dwellings count as trading stock under section 70 of the Income Tax Assessment Act 1997, not capital assets sitting on the balance sheet. The ATO sets out three accepted methods, and the closing value you record on 30 June becomes your opening value on 1 July. You can read the ATO's full treatment on its valuing trading stock page, and pair it with our EOFY sequencing guide for how the figure flows into your refinance position.
The three trading stock valuation methods are cost price, market selling value, and replacement value, each defined on the ATO's valuing trading stock page. Cost price captures every cost incurred to bring the stock to its current condition and location, market selling value reflects what it would fetch if sold in the normal course of business, and replacement value is the cost to obtain an almost identical item on the last day of the income year. A developer can pick a different method for different items, and a different method each year.
A developer can choose a different valuation method each year for different items of trading stock, but the closing value carries forward as the opening value for the next income year. This means each switch creates a flow-on effect across two financial years that any second mortgage application has to read consistently. See our second mortgage glossary entry for the ratios lenders test when stock-on-hand sits behind the security.
Choosing market selling value does not trigger a capital gains event because residual stock is trading stock, not a CGT asset. The difference between closing values flows through taxable income, not capital gains, and only the later conversion from trading stock to a held-for-rent asset changes the character of the holding. For the finance side of that pivot, see our EOFY sequencing playbook.
The trading stock valuation choice affects a second mortgage application because lenders read your stock-on-hand cost line as an equity buffer behind the security. A higher closing value lifts the equity story but also lifts taxable income; a lower closing value softens income but compresses the equity read. A second mortgage on completed residual stock typically gets sized off the lower of the two, varies by lender.
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