In Miley and Commissioner of Taxation, the Administrative Appeals Tribunal (AAT) held that, for the purposes of the maximum net asset value (MNAV) test in s 152-15 of the Income Tax Assessment Act 1997, the market value of the taxpayer’s shares was not his share of the sales proceeds ($5.9 million), but the actual market value of his shareholding in the company just before the share sale.
The Commissioner had contended that the ‘market value’ of the taxpayer’s 100 shares was the actual consideration paid by the purchaser for them. However, the AAT held that the purchaser had in this case paid a premium for complete control of the company. Consequently, the taxpayer’s proportionate share of the sales proceeds was discounted (in this case it was 16.7%) on the basis that, applying the principle in Spencer v Commonwealth, the consideration paid by the purchaser for all the shares in the company was more than what a hypothetical willing but not anxious purchaser would have paid if it had purchased the taxpayer’s 1/3rd shareholding alone. Applying this discount, AAT found that the taxpayer’s net assets did not exceed the $6 million MNAV threshold and taxpayer satisfied the MNAV test.
Consequently, when reviewing the market values of capital gains tax assets, taxpayers and their advisers should consider what, if any, premiums or discounts could apply in relation to capital proceeds.
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