Question:
CGT net asset value test: valuations flawed
Answer:
Recent changes are outlined below:
July 1, 2022
- Loss carry back for eligible companies extended to cover 2023 income year.
- Professional firm profits diverted to the professional's spouse or other associates to be reviewed under new Tax Office guidance.
- Corporate collective investment vehicle legislative regime introduced.
- Temporary full expensing of depreciating assets extended to include 2023 income year.
- Depreciable assets of a company joining a tax consolidation group have tax costs setting rules modified for assets depreciated under temporary full expensing rules.
December 9, 2021
- Reduced Pandemic leave disaster payment of $750 per week made available through to 30 June 2022.
August 5, 2021
- COVID-19 Disaster Payments are non-assessable non-exempt income in 2021 income year and later. Payments phasing out as vaccination rates increase.
July 1, 2021
- New Investment Engagement Service launched for businesses planning significant new investments in Australia.
- Tax Office small business independent review service made permanent for businesses with turnover < $10m, for income tax, GST, exercise, luxury car tax, wine equalisation tax and fuel tax credits. Requested before amended assessment issued.
- Small business income tax offset for individuals increased to provide a reduction of 16% for a tax payable up to $1,000.
- Self-managed superannuation funds can now have six members, increased from four members previously.
July 1, 2021
- Some COVID -19 state and territory business grants received by small and medium enterprises are non-assessable, non-exempt income for 2021 and 2022 income years.
- Certain state, territory and local government financial support for individuals and businesses suffering COVID-19 impacts made exempt where businesses have turnover less than $50 million and only in eligible programs.
March 31, 2021
- JobKeeper payments scheme ended.
October 5, 2020
- Boosting apprenticeship commencements subsidy (up to 50% of apprentice's wages) is assessable income.
June 4, 2020
- Homebuilder grant for new home or substantial renovation construction is not subject to income tax.
April 1, 2020
- COVID-19 cash flow boost payments are not subject to income tax
In two separate cases, the Tribunal has denied access to CGT concessions where valuable assets were sold and the taxpayers relied on poor valuations.
In Syattadel Holdings a marina purchased in 1996 for $1.675 million was sold in 2006 for $8.9 million. The $8.9 million price must have been subject to really good negotiation on the part of the vendors as the taxpayer’s valuation placed a market value of $4.5 million on the marina and the Tax Office valuer placed a price of $5.3 million on the facility. The Tribunal said that the two conventional approaches to valuation used by the Tax Office valuer had more merit and that the marina value …was at least that amount [$5.3m]. At the time the maximum net asset value was $5 million.
In Venturi a motel and caravan park was owned by a company and the two $1 shares were sold for $4.9 million.
Although the taxpayer’s valuation was made on a going concern basis no attempt was made to estimate future profits. There were two valuations that were made considerably after the CGT event and the accountant admitted that the $4.9 million price was calculated to
obtain the small business CGT concessions. Again, the net asset value test was capped at $5 million at that time.
The limit for the net asset value test has now been lifted to $6 million.
Clearly, it is important for small business owners wanting to access the concessions to have a properly
formulated method of valuing not only the business assets but also all assets and liabilities taken into account in
the net asset value test.
AAT Case [2011] AATA 589, Re Syttadel Holdings Pty Ltd and FCT, AAT Case [2011] AATA 588, Re Venturi and FCT, WTB 1422 and 1423
