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Value May be Less Than Price

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In the recent case of Miley and Commissioner of Taxation (‘Miley’), which relates to the small business CGT concessions, the AAT held that the market value of shares owned by the taxpayer just before the CGT event was less than the capital proceeds received from their sale to an unrelated buyer.

The taxpayer in Miley was one of three equal shareholders in the relevant company. All of the shares in the company were sold to the same purchaser at the same time and each shareholder received $5,900,000 for the sale of their shares.

The taxpayer argued that the market value of the shares in the company was a lesser amount compared to the actual consideration received, as a discount should be applied because of the lack of control he had as a minority shareholder, whereas the purchaser would have 100% of rights in relation to the company.

The ATO argued that the best evidence of the value of the shares sold was the price paid in an arm’s length sale.

The AAT found that the correct enquiry is directed towards determining the market value of the taxpayer’s shares alone and that it was not correct to assume that they would be sold as part of a package comprising all of the shares in the company. The AAT agreed that the consideration that the taxpayer actually received for his shares was more than a hypothetical willing but not anxious purchaser would have paid if it had purchased the taxpayer’s shares alone. Accordingly, a discount for ‘lack of control’ of 16.7% was applied to determine the value.

It was noted that it is often the case that the actual selling price of an asset at a particular time is the best evidence of market value but that this did not apply in this particular case.

The case demonstrates that, as always, the application of the small business concessions should not be approached on a generalised or superficial basis and that careful consideration will often yield more advantageous outcomes.

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