Tax Facts
Please note that the information provided in Tax Facts is of a general nature only and should not be acted upon without specific advice based on the precise facts and circumstances of a particular taxpayer.
If you do not already receive Tax Facts direct from us but would like to, please subscribe by entering your details to the right of this message.
Subscribe to Tax Facts
Market value of shares not reduced for lack of control
In brief: In an important win for the Commissioner, the Federal Court has held that there was error by the AAT in valuing a 1/3rd holding of shares in a private company by discounting the sale price for a ‘lack of control’. The taxpayer was one of 3 equal shareholders in the company who together contracted to sell all the shares for a total price of $17.7M, with each shareholder receiving $5.9M. The market value of the taxpayer’s shares was critical in determining whether he satisfied the $6M net asset value test and was entitled to the small business CGT concessions.
More: This case involves 2 issues. The first is the precise identification of the relevant CGT asset or assets involved and the second is the determination of the market values of those assets for the purposes of s152-20. So that latter question necessarily involves principles of valuation law, in the context of the Income Tax Assessment Act 1997. And the case is very important, given the significance of market values in many areas of tax law.
Although commencing with the price actually received by the taxpayer, the AAT had discounted that price in recognition of the relative lack of control of a minority shareholder. It had done so on the basis that the contemporaneous sale of all shares owned by the other shareholders were ‘special circumstances’ that should be recognised in the valuation process. The Court disagreed and held in any case that the AAT had erred by not having regard to market realities and the recognition in valuation principles of a buyer willing to pay more for an asset than others ‘because they are in a better position to exploit the particular attributes or potentialities of the asset’. (FC of T v Miley [2017] FCA 1396)
12 Dec 2017
Topic: CGT/Income Tax
Topics
