Syttadel Holdings Pty Ltd and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2010/1912)
Judgment date: 26 August 2011
Date published: 7 February 2012

Summary of decision:
Outlines the ATO approach to this case which concerned the market value of an asset to determine whether the maximum net asset value test threshold was satisfied and the entitlement to small business CGT concessions.

Overview of facts:
The taxpayer sold a marina in August 2006 for $8.9m. It claimed entitlement to concessional CGT treatment under Division 152 of the Income Tax Assessment Act 1997 , contending that the $5m maximum net asset value test was satisfied as the market value of the marina was $4.5m. The Commissioner did not accept that contention and assessed the taxpayer on the basis that the value of the asset was its sale price and, as the maximum net asset value test was exceeded, this precluded concessional treatment. | The sole issue before the Tribunal was the market value of the marina in July 2006. Both parties placed valuation evidence before the Tribunal that proceeded on the basis of highest and best use. The taxpayer's valuer determined the market value of the marina to be $4.5m, and the Commissioner's valuer determined it to be $5.3m. | Issues decided by the tribunal | The Tribunal was not persuaded by the taxpayer's valuation evidence as it involved adopting a market value by reference to offers made and the sum at which the taxpayer was prepared to sell. As such the taxpayer had not discharged its onus and it was not strictly necessary for the Tribunal to consider the Commissioner's valuation evidence. The Tribunal however commented that the capitalisation rate adopted by the Commissioner's valuer was appropriate having regard to the market evidence and other factors, and it also accepted the alternate valuation produced by undertaking the direct comparison method. Accordingly the Tribunal was satisfied that the marina had a market value of at least $5.3m in July 2006.

Issues decided:
The Tribunal was not persuaded by the taxpayer's valuation evidence as it involved adopting a market value by reference to offers made and the sum at which the taxpayer was prepared to sell. As such the taxpayer had not discharged its onus and it was not strictly necessary for the Tribunal to consider the Commissioner's valuation evidence. The Tribunal however commented that the capitalisation rate adopted by the Commissioner's valuer was appropriate having regard to the market evidence and other factors, and it also accepted the alternate valuation produced by undertaking the direct comparison method. Accordingly the Tribunal was satisfied that the marina had a market value of at least $5.3m in July 2006.

ATO view of decision:
The ATO considers that the case was decided on its facts. | Guidance on the process to establish a market value for various taxation purposes is contained in the ATO publication Market valuation for tax purposes (click on hyperlink to access). As noted in the publication, the ATO considers market value should be assessed on the basis of the ' highest and best use ' of the asset as recognised in the market. The Commissioner's valuation in the case proceeded on this basis (paragraph 13 of the decision). | The ATO generally considers the sale price of an asset to be its market value. | However, in each particular case all the relevant facts and circumstances must be taken into account to determine the most appropriate methodology for calculating market value. In the circumstances of this case, the most appropriate methodology for calculating market value (according to that term's ordinary meaning) was considered to be by way of an objective business valuation - what a desirous buyer would have paid as a fair price to a vendor willing to sell for a fair price but not desirous to sell (per Griffith CJ in Spencer v Commonwealth of Australia (1907) 5 CLR 418 at 432.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | None. | Implications for Law Administration Practice Statements | None.

Legislative references: Income Tax Assessment Act 1997 Div 152 152-20(1) SDiv 960-S 995-1
Case references: Spencer v The Commonwealth (1907) 5 CLR 418
Subject references: Capital gains tax Small business relief Basic conditions for relief Maximum net asset value test