Inspector general recommends new small-business valuation requirements
One of the most important things to emerge in the business valuation industry in recent weeks is the release of the inspector-general of taxation’s review into the ATO’s administration of valuation matters, which outlines the ATO’s commitment to develop a standard template for instructing valuers, cut red tape, and reduce compliance costs.
If implemented, small businesses would no longer be required to undertake valuations to claim tax concessions.
The review came on the back of concerns raised by tax professionals and representative bodies about the increasing role of valuations in tax law and their associated compliance costs.
“There are inherent difficulties associated with valuations, such as their subjective nature, the use of ranges, and the potentially prohibitive costs of obtaining them,” Ali Noroozi, inspector-general of taxation, said in the review.
“Minor changes in valuations may also have a disproportionate tax effect where, for example, the eligibility for a concession is dependent on not exceeding certain thresholds.”
Given these issues, the inspector-general made nine recommendations to the ATO aimed at taking a more practical and transparent approach to assessing taxpayer valuations and developing administrative safe harbours.
The recommendations include requiring valuations only where it has the “highest net benefit,” providing shortcuts or safe harbours as an alternative to conducting fresh and full valuations, and tapering the eligibility criteria for tax concessions.
The inspector-general also recommended that the ATO improve and promote the market valuation private ruling system, which can offer taxpayers greater certainty, as well as provide more detailed guidance on the application of valuation-related penalties.
The ATO has agreed to almost all nine recommendations, with the exception of bearing some of the valuation costs of market valuation private rulings.
“We are not in a position to reliably forecast costs nor savings that may arise from an unknown increase in applications.”
Let us know what you think of the IGT’s recommendations by emailing editorau@bvresources.com.
Download the report here.
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International valuation organisation to hold training courses in 2015
The Australian chapter of the International Association of Consultants, Valuators and Analysts (IACVA) will offer two face-to-face training courses in Australia in 2015 for candidates to achieve the internationally recognised ICVS certification.Courses are five days each and are offered 13-17 July as well as 6-8, 13-14 November, 2015. In addition, candidates can achieve certification by way of online, self-study training courses.
Formed in 2000, the IACVA provides worldwide support to valuation professionals. The organisation’s objective is to transfer best practice by promoting the uniform application of valuation theory, approaches, methods, and models throughout the world.
IACVA is actively achieving this in 55 countries. There are 6,000 individual members worldwide—5,800 of which are outside North America. Other than the Chartered Financial Analyst (CFA) Institute, IACVA has the largest global membership of any valuation organisation.
Look for more information about these trainings in upcomingissues of BVWire—Australia.
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Lessons from the REIT sector on valuation of distressed businesses
In the first-quarter issue of Business Valuation Australia (subscription required), Richard Stewart, PwC partner, draws upon his experience in the real estate investment trust (REIT) sector to dissect the issue of valuing distressed organisations.
“Because distressed organisations are rare compared to those that are financially stable, there is often a limited data set from which to draw inferences about the impact of financial distress,” Stewart says in the article.
According to Stewart, the setting of REITs is perfect to “isolate the impact of distress on their equity securities.”
“Seldom will the information in other sectors provide the clarity of the impact of distress that is available from the setting of REITs.”
Stewart uses his article to outline five generalisable principles that can be applied to all valuations involving distress.
Subscribe now to BVA and read Stewart’s article.
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Catch up on the latest news in the January Business Valuation Australia
If you haven’t yet subscribed to
Business Valuation Australia (BVA), our quarterly journal for Australian and New Zealand business valuation practitioners, you are missing out on coverage of the latest patterns and trends in business valuation, analysis of new methodologies, and regulatory and standards updates.
In addition to Richard Stewart’s article on distressed valuations, highlights of the upcoming issue include:
- Summary of the key takeaways from the recent Business Valuation and Forensic Accounting Conference;
- “Valuer’s Q&A Corner”: Advice from Richard Stewart on using IPO studies and restricted stock studies for discounts;
- Pretax versus posttax discounted cash flows in loss and damages calculations, by John-Henry Eversgerd; and
- Increased demand for SME valuations, by Andy Gilmour.
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