Income Tax Act 2007 section 304

Excluded activities: wholesale and retail distribution

Section 304 defines what constitutes a trade of wholesale or retail distribution and sets out the criteria for determining whether such a trade is an "ordinary" one, which matters because ordinary wholesale and retail distribution is not an excluded activity for venture capital trust purposes.

• Wholesale distribution means selling goods to other businesses for resale (with or without processing) to the public; retail distribution means selling goods directly to consumers for their use or consumption.
• A wholesale or retail trade is not "ordinary" if it substantially involves dealing in goods collected or held as investments, or if a significant proportion of goods are held for much longer than would reasonably be needed to sell them at market value.
• Positive indicators that the trade is ordinary include buying in bulk and selling in smaller quantities, operating across different buying and selling markets, and employing staff and incurring genuine trading expenses beyond the cost of goods.
• Negative indicators — suggesting the trade is not ordinary — include transactions with connected persons, matching purchases with forward sales, holding goods for abnormally long periods, trading from non-standard locations, and never taking physical possession of the goods.