A share trader who holds share as trading stock at the end of an income year must elect to value each share (as an item of trading stock), at cost, market selling value or replacement value. From a planning perspective, it is tax-effective for a share trader to value their closing stock (their shares) at the lowest value, in order to minimise any assessable trading stock adjustment or maximise any deductible trading stock adjustment for a year.
During a period of economic growth, it is generally more tax-effective for share traders to elect to value closing stock on-hand at year-end at cost, rather than at market selling value, because the market selling value of shares during a period of growth is usually greater than cost.
Conversely, in a period of economic decline when share prices are falling, by valuing closing stock on-hand at year-end at market selling value, a share trader may end up with a closing stock value that is lower than their opening stock value. This creates a cashless deduction for the taxpayer without any actual disposal of their shares.