Gary Chiert and Hasting Lai, Indirect Tax specialists, alert NSW taxpayers to a new requirement to submit valuation instructions for all valuations presented to the OSR.
The Chief Commissioner of State Revenue in New South Wales (NSW) has taken the unprecedented step of requiring taxpayers to disclose and submit valuation instructions for every valuation that is presented to the Office of State Revenue (OSR) with effect from 24 August 2016.
The Commissioner requires the valuation instructions because he will not accept a valuation on a 'goods and services (GST) exclusive basis'. The implication for taxpayers is that the Commissioner is expecting to collect an extra 10 percent stamp duty in all but exceptional cases such as GST-free supplies of going concerns and input taxed sales of residential premises.
The greatest impact of the Ruling is on landholder duty. GST will not be factored into the price of a transaction attracting landholder duty because it involves the acquisition of shares in a company or units in a unit trust. A market valuation is required of the company’s or unit trust’s underlying landholdings. It doesn’t make sense to add GST to the valuation because GST does not represent 'value' for commercial property – it is an amount that is paid to the Australian Taxation Office (ATO) and not retained by the vendor. However, it appears that the Commissioner requires GST to be added to the dutiable value.
The Ruling presents a challenge to taxpayers, valuers and advisers. In every valuation, regard would need to be had to:
A key factor according to the ruling is that the particular GST treatment of a sale is not determinative because the value is determined for a hypothetical sale. This requires an assessment of similar sales and it is not clear whether the Commissioner expects each asset to be treated individually or on a whole of business basis.
Importantly, this approach may give rise to material increases in the ‘value’ of a property where the property is sold as a GST-free going concern but comparable properties are not. Particular structuring may not be taken into account.
Taxpayers and advisers need to be alert to a possible material increase in the cost of transactions as a result of an increase in duty payable resulting from valuers being forced to take the above approach.