Independent valuations for tax events and business restructures

Not for a business. The ATO guide states that for tax purposes the acceptability of a valuation usually depends on the valuation process undertaken rather than who conducted it, and that there is no formal admissions board in Australia for business valuers. It adds that a valuation which adopts and follows professional standards can add credibility, and that you are responsible for ensuring the valuer is suitably knowledgeable and experienced, properly instructed and objective. Real property is treated differently: the guide notes that in Queensland valuers must be registered by the Valuers Registration Board of Queensland, and in Western Australia land valuations must be undertaken by a licensed land valuer. Where a practice owns its premises, the land may need a separate valuation.

It is one of the ways to satisfy the basic conditions for the small business CGT concessions. The total net value of the CGT assets of you, entities connected with you, your affiliates and entities connected with your affiliates must not exceed $6 million just before the CGT event, and the ATO states that limit is not indexed. Net value is the sum of the market values of those assets less related liabilities and provisions for annual leave, long service leave, unearned income and tax. Because it turns on market value rather than book value, and because the ATO worked example of a penalty for recklessness involves a taxpayer that valued its own assets and understated them, the test usually calls for an independent valuation.

Often, yes, even though the roll-over itself does not require that market value consideration, or any consideration, be given for the transferred assets. The ATO notes that stamp duty and GST consequences remain, and duty is state based: in Western Australia, for example, goodwill and a restraint of trade arrangement are business assets assessed on the greater of the consideration and the unencumbered value. Shares or units issued by the new entity are usually recorded at value, other owners and lenders may want the figure, and a valuation at the start makes the position easier to evidence if the restructure is later examined. Whether the roll-over is available, and whether the restructure is genuine, are questions for your tax adviser.

By valuing the business as a whole and deducting the identifiable net assets, leaving goodwill as the residual. That is the preferred approach in TR 1999/16, which compares the present value of predicted earnings with the market values of the identifiable net assets, while accepting that other methods may be used. The ruling treats goodwill as a single CGT asset separate from plant, licences, statutory permits, quotas, entitlements, valuable contractual rights and intellectual property. We then consider how much of that goodwill emanates from the practitioner personally, or from key employees a purchaser would not retain, which the ruling says is not transferable, and how much attaches to the location, systems, contracts and workforce.

Yes. Many tax valuations are retrospective, for example just before a CGT event that has already happened, or at the date a restructure deed was executed. The valuation uses the information that was known, or could reasonably have been foreseen, at that date. The ATO lists reliance on post-valuation date information and on future events that could not reasonably be foreseen among the common issues it finds on review, so later trading results are used only to test the reasonableness of expectations held at the valuation date, not to set the value.

The meaning of market value is broadly the same, but the dutiable base differs by state and so does the list of assets caught. In New South Wales goodwill, intellectual property, statutory licences and debtor receivables are not dutiable, while land, an interest in land such as an assigned lease, and fixtures are. Moveable items such as clinical equipment become dutiable when they are sold in an agreement that also contains dutiable property, so an assigned lease can pull them in. In Western Australia goodwill, a restraint of trade arrangement and a business identity are business assets in their own right, assessed on the greater of the consideration and the unencumbered value. We value each class at one date; your adviser applies the duty rules.

It can. The ATO states that you may apply for a private ruling on an asset's market value, either by asking it to value the asset or by providing a valuation and asking it to confirm the value, provided the value is relevant to a question about the tax law. The ATO may use a professional valuer to conduct or review the valuation and the law allows it to pass that fee on to you. It will not rule on the appropriateness of a valuation methodology or on a market value for a future event. A report that already covers the minimum contents the ATO expects gives a reviewing valuer less to query.

It may. Division 7A of the Income Tax Assessment Act 1936 treats a transfer of property by a private company to a shareholder or an associate as a payment, and section 109C measures that payment as the amount that would have been paid by parties dealing at arm's length, less any consideration given, with the payment being nil where the consideration equals or exceeds that amount. Section 109CA extends a payment to the provision of an asset, so letting a shareholder use practice rooms or clinical equipment can also count. A loan is dealt with separately. An independent market value fixes the arm's length amount; whether Division 7A applies is for your tax adviser.