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Businesses can use valuation shortcuts to determine the market value of certain assets for consolidation purposes.
Valuation shortcuts are for consolidation purposes only. Businesses can use them to obtain a reasonable approximation of the true market value of certain assets and membership interests, instead of obtaining new valuations.
The valuation shortcuts are provided under our general administrative powers. Using them reduces the risk of us undertaking a market valuation review of the relevant assets.
Use of the valuation shortcuts is subject to constraints. For example, they are not available for calculating a joining entity's market value for determining the maximum use of transferred losses.
Type of asset |
Valuation option |
---|---|
1. Depreciating assets, not including intangible assets, that have not been depreciated on an accelerated basis, whose individual adjustable values are 1% or less of the joining subsidiary's allocable cost amount |
Adjustable value can be used as market value. It can be revised to ignore any balancing adjustment amount that reduced it |
2. Depreciating assets, not including intangible assets, that have been depreciated on an accelerated basis, whose individual adjustable values are 1% or less of the joining subsidiary's allocable cost amount |
Adjustable value revised to ignore the effect of accelerated depreciation can be used as market value. It can be revised to ignore any balancing adjustment amount that reduced it |
3. Trading stock, other than livestock and growing crops, that is not a retained cost base asset |
Terminating value at the joining time may be used as market value except in certain circumstances |
4. Employee share scheme shares |
Existing market valuation updated if appropriate |
5. Unlisted shares |
Existing market valuation updated if appropriate |
When you use a valuation shortcut for an asset, you must have adequate supporting documentation which demonstrate that the asset satisfies the eligibility requirements of that shortcut.
While using the valuation shortcuts is optional, the decision to use a particular shortcut must apply to all of an entity's assets to which the shortcut applies.
For valuation shortcuts 1 and 2, there is an exception to this rule. You can opt to use these shortcuts for a joining entity's eligible depreciating assets while obtaining new market values for the assets (including those eligible for the shortcut) that make up a single large functioning unit of integrated plant. Such a unit includes integrated plant within:
The single large functioning unit of integrated plant must have a total adjustable value greater than 1% of the joining subsidiary's allocable cost amount (ACA) to qualify for this exception.
Without this exception, the one in, all in rule prevents you from obtaining new market values for those constituent assets that were otherwise eligible for the shortcut.
The exception works as follows:
Valuation shortcuts, except for shortcut 3 (trading stock), are not available if there is an intention at the joining time to sell any of the following after consolidation:
This provision only applies where:
For example, the provision would apply when a decision had been made to:
However, the provision would not apply where an entity had:
Where this provision applies to an asset, it will no longer be treated as an asset of that type for purposes of applying the one in, all in rule. The intention to sell the asset prevents the use of the valuation shortcut. However, it will not prevent the valuation shortcut from applying to other assets that qualify for that shortcut.
Valuation shortcuts cannot be used to calculate the available fraction for the use of a joining entity's losses by the head company. For this purpose, market valuations of the loss entity and the consolidated group at the joining time will be required.
Where valuation shortcuts have been adopted for certain assets, the shortcut values should be used in determining the market value of the entity's goodwill. Goodwill is determined as the excess of the market value of the entity over the market value of its net identifiable assets at the joining time.
The net identifiable assets may have a mixture of market values and shortcut values. If a taxpayer market values any of the entity's net identifiable assets that qualify for one of the shortcuts to work out the value of goodwill, they should not adopt that valuation shortcut for qualifying assets that have been market valued.
If you rely on a previous valuation for current purposes, it will be difficult if the previous valuation was compiled for a different purpose. The current valuation should:
The adjustable value at the joining time, which may be revised to ignore a balancing adjustment amount, can be taken as the market value for all depreciating assets where all the following apply:
The market value determined by applying valuation shortcut 1 may be affected by a balancing adjustment event occurring under the income tax law.
If you have an assessable balancing adjustment amount because of a balancing adjustment relief, you have the option of revising the adjustable value. The revision ignores any balancing adjustment amount that reduces the amount available for decline in value of the depreciating asset.
A revised adjustable value can be taken as the market value for all depreciating assets where all the following apply:
The revised adjustable value reflects an amount calculated as if the asset had been depreciated at normal rates in accordance with its effective life. This ignores the effect of broad-banding of effective life under the accelerated depreciation provisions and can ignore the effect of a balancing adjustment amount. We prescribe the effective life unless you self-assess it for depreciation purposes.
To work out the revised adjustable value at the joining time, you must recalculate the asset's depreciation from the time it was first depreciated by the joining entity up to the joining time. You can also choose to exclude any balancing adjustment amount that had reduced the amount available for a depreciating asset's decline in value.
For the recalculation, use the applicable standard (non-accelerated) rates that would have applied to that asset from the time it was first depreciated by the joining entity up to the joining time.
This shortcut is not available for joining entities that were majority owned by the prospective head company at 27 June 2002. The trading stock of these entities must be treated as a retained cost base asset.
The terminating value at the joining time can be taken as the market value for trading stock, except where either of the following applies:
Shares and stapled securities issued under an employee share scheme (ESS interests) that represent 1% or less of the membership interests in an entity are disregarded in determining whether an entity is wholly owned. However, the head company still uses their market value to calculate its ACA for membership interests in the joining entity.
The availability of this shortcut option acknowledges that valuing minority interests is a difficult and complex process.
Where an employee, under the former Division 13A of the ITAA 1936, holds shares or stapled securities, those interests will have been market valued where the employee has either:
This also applies where the employee has previously held rights, has exercised those rights, and now holds shares or stapled securities.
For employers providing ESS interests to their employees after 30 June 2009, Division 392 of the TAA requires, that they report the discount given in relation to those interests to us by 14 July after the end of the financial year they are provided. To meet their reporting requirements, employers will need to market value the ESS interests.
Under this valuation shortcut, the head company may rely on these existing market valuations when calculating the employee share interest component of the ACA for the joining entity, provided for ESS interests acquired either:
As all membership interests in a wholly-owned subsidiary will be held by the head company or other members of the consolidated group, they will not be listed on a stock exchange.
The availability of this valuation shortcut acknowledges that valuing unlisted membership interests is a difficult and complex process.
Where any ESS membership interests in the joining entity have been market valued for Division 13A of the ITAA 1936 or Division 83A of the ITAA 1997, the head company can rely on these valuations to work out the cost of all its membership interests in the joining entity, provided the: