Tax probe on asset worth
All sorts of assets including land and property, plant and equipment and intangibles, such as intellectual property and rights, have to be priced at "market value" for capital gains and other tax purposes.
The Inspector-General of Taxation, Ali Noroozi, has launched the inquiry after receiving complaints from small business owners about the way the Tax Office handles the requirement.
"The main source of concern is the compliance burden," he told BusinessDay. "But the other problem is there is no definition of market value. What one valuer decides might be quite different to what another valuer decides.
"Taxpayers have to self assess, they have to determine what the market value is. But some time down the track the Tax Office might audit them. For example, the taxpayer might say a table is worth a million dollars. Later the office might say it's only worth $5. That's a bizarre example, but the risk is that even bringing in an outside valuer may not provide protection.
"While market value is a great economic concept, on a practical level it causes lots of difficulties."
He has asked for submissions by December 20.
Frequently Asked Questions about this Article…
The tax inquiry aims to investigate the Tax Office's system for valuing assets for tax purposes, addressing concerns about the compliance burden and the lack of a clear definition of 'market value'.
A clear definition of 'market value' is crucial because it affects how assets are priced for capital gains and other tax purposes. Without a standard definition, valuations can vary significantly, leading to potential disputes with the Tax Office.
The market value requirement affects a wide range of assets, including land and property, plant and equipment, and intangibles like intellectual property and rights.
Small business owners have expressed concerns about the compliance burden of determining market value, as they must self-assess and face potential audits from the Tax Office, which can lead to disputes over asset valuations.
Self-assessing asset values carries the risk of discrepancies between the taxpayer's valuation and the Tax Office's assessment, which can result in audits and potential financial discrepancies.
Hiring an outside valuer may not always provide protection against disputes, as the Tax Office might still disagree with the valuation, highlighting the need for a clearer definition of market value.
Submissions to the tax inquiry are requested by December 20, allowing stakeholders to provide input on the asset valuation system and its challenges.
While market value is a sound economic concept, its practical application can be challenging due to varying interpretations and the potential for significant differences in asset valuations.
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