Valuations of assets and businesses are frequently needed for taxation purposes.  There might be transfers of assets between related individuals or companies, calculation of asset values to determine eligibility for small business concessions, valuations required when entering the consolidation process for wholly owned companies and so on.

The Inspector General of Taxation has completed his review of the Tax Office’s administration of valuation matters and has identified inherent difficulties.  He has issued a 129 page report and made a number of recommendations to the Tax Office, most of which has been agreed to.  These attempts to prevent disputes from arising and encourage the Tax Office to adopt a more transparent and proportionate approach.

The Inspector General’s recommendations include:

• Review the taxpayer’s instructions to valuers prior to lodgement of tax returns, thereby avoiding future disputes.
• Develop a preliminary risk assessment process which would reduce costs and formality.
• Get expert advice from lawyers and valuers to assist the Tax Office in identifying issues, gathering information and instructing valuers and also for staff training.
• Revise its standard template for instructing valuers.
• Allow taxpayers access to the Tax Office’s instructions to its valuers, and
• Only use publicly available or disclosable information in arriving at its market valuations.

The Inspector General also recommended that the Tax Office improve its market valuation private ruling system to offer taxpayers greater certainty and more detailed guidance.  The Tax Office agreed with this but advised that it would not be able to bear the cost involved.

The Inspector General also reported that where there is a difference between the professional judgement of each party’s valuer, the taxpayer’s valuation should be accepted.  The Tax Office should provide guidance to its compliance officers to assist them in determining when to accept the taxpayer’s valuation.

The Inspector General made other recommendations for consideration by the Government with a view to reducing the need for valuations, particularly for small business.  These recommendations included:

• Requiring valuations only where it has the “highest net benefit”.
• Providing shortcuts or safe harbours in lieu of obtaining fresh valuations.
• Reducing reliance on valuations to access the small business CGT concessions, and
• Tapering eligibility criteria for tax concessions.

The Government indicated that it will consider these recommendations during the preparation of the upcoming Tax White Paper.

WTB 2015/62

Andrew and Tony Lovett

11 February 2015

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