At some point you may require a market valuation for your Business which has tax implications. The Australian Taxation Office (“ATO”) has issued guidance around what they look for in a market valuation for tax purposes.
It is important to consider the ATO’s guidance, as any non-compliance may result in interest and penalties of any shortfall in tax.
In this article we summarise some of the key requirements for a market valuation which achieves compliance with the ATO.
Tax compliance of valuation reports
Report purpose and credibility
The valuation report should include its purpose, instructions, scope and its limitations. If there are any relevant tax legislative provisions, case law, or ATO guidance related to the valuation, it should be specified within the report.
To add credibility to the valuation, a set of professional standards should be adopted such as the International Valuation Standards, APES 225 Valuation Services, or RICS Red Book depending on the purpose of the valuation.
The identity of the individual who prepared the report should be provided along with details of their status and qualifications. Independence or conflicts of interest between the valuer should be confirmed.
All sources of information which were relied on should be included in the report. Records of such information used should be kept to comply with statutory record-keeping requirements. Any assumptions relied on should be listed. Details of experts used should be included such as their competency in the field, their use of assumptions, methods, and sources of data, and their independence.
The report should define value and the specific methodology used (market approach, income approach, or cost approach). The ATO also recommends adding a secondary or cross-check method to support the primary methodology. If the methodology used results in a range of possible values, the report should explain why a specific market value was finally adopted. Any material differences from known historical costs or previous valuations should be explained and quantified. The valuation assessment date and date of report issued should be stated.
Who can carry out a business valuation
There is no requirement as to who can prepare a valuation for a business. The focus for the ATO is rather on the process undertaken for the valuation. However, the ATO considers that a reasonable estimate of market value requires skill, knowledge, and experience.
Find Out More
Groves & Partners are expert business valuers with experience in preparing valuation reports which are compliant with the ATO’s requirements.
Our team of business valuers include Chartered Accountants, Registered Business Valuers and Certified Minority Interest Valuers. To find out more about our business valuation services please phone us on 1300 892 717 (+61 2 7208 7970) or email info@groves.com.au.