Consider the value

Value

Additional complexity arises when the valuation provisions are invoked. For example, in an asset transfer, the duty exposure is based on the higher of consideration or unencumbered value. In a share/unit transfer the consideration only informs the unencumbered value. Namely, the price paid to acquire the shares/units of a target does not necessarily translate to the underlying unencumbered/market value.

Recent litigation in the capital gains and landholder duty spaces illustrates the imperative of robust valuations to support the tax positions adopted[3]. A valuation must adopt an appropriate methodology predicated on accurate inputs and assumptions. Recent litigation in the resources space illustrates that certain valuation methodologies are not suitable to answer the questions posed by the statutory context. For example, the “netback” method[4] (income tax context) and “restoration” method[5] (duty context) have been dismissed by the Courts as methodologies which did not adequately address the statutory requirements.

Clients typically crave certainty from advisors/revenue officials applying the legislation. The valuation space is intrinsically opaque as lawyers/ revenue officials may be across the legislation, rulings and case law but lack the nous to test the valuation methodology adopted. This can introduce uncertainty for clients due to the disconnect between the technical tax triggers and the amount assessed (i.e. the market value of the asset).

The distinct concept of value requires expert support. The Federal and State Commissioners have released limited guidance in this area. The WA Commissioner should be commended for providing guidance in the resources space and monitoring that guidance[6]. The risk remains of substantial disparities/disputes arising given the subjective nature of the art of valuation.