Some tax rules turn on the market value of a business, or of an interest in one. When they do, the Australian Taxation Office expects that value to be supported: reached by a sound method, stated at the right date, and written down so someone else can follow how it was reached.
When the tax office expects a market value
For a small business, the usual occasions are these:
- A restructure, such as moving a business into a company or a trust
- A transfer of shares, units or business assets between related parties, where the tax rules often look to market value rather than the amount actually paid
- The small business CGT concessions, where the maximum net asset value test is worked out from the market value of the assets involved
- An employee share scheme, where shares or options in an unlisted company are issued to staff
- Trust and SMSF matters, such as an asset moving into or out of a self-managed super fund, which must happen at market value
What it expects a valuation to show
The ATO's guide, Market valuation for tax purposes, sets out what it looks for. In outline: the purpose of the valuation, the asset or interest valued and the valuation date; the method used and why it suits the business; the information relied on and where it came from; and the assumptions, with the reasoning that connects them to the result. The guide also encourages checking the result against a second method where one can be applied.
A value that cannot be followed is harder to stand behind if the tax office asks about it. One that sets out its method and assumptions answers those questions in advance.
How our report sets it out
Our valuation report is written to set out those things: the purpose, the interest valued and the valuation date, the method and why it was chosen, the figures relied on and every adjustment to them, and the assumptions and limitations in full. You can give it to the Australian Taxation Office as it stands.