Evidence of value requirements and guidelines
Evidence of value requirements and guidelines
Ruling number
|
DUT 012 version 4 |
Date issued
|
November 2023 |
Issued by
| Mandy Young Chief Commissioner of State Revenue
|
Effective from
| 4 September 2023 |
Effective to
|
-
|
Status
| Current |
Preamble
- Chapter 2 of the Duties Act 1997 (the “Act”)i imposes duty on certain transactions (“dutiable transactions") affecting specified classes of dutiable property. Duty is charged on the "dutiable value" of the dutiable property the subject of the dutiable transaction.
- In general, the dutiable value of dutiable property is the greater of the consideration for the dutiable transaction, and the unencumbered value of the dutiable property (section 21). For the purposes of Chapter 4 of the Act which relates to Landholder transactions, the dutiable value is the unencumbered value of landholdings and goodsii. Section 17A of the Taxation Administration Act 1996 (“TAA”) authorises the Chief Commissioner to require a person who is liable to duty to provide a declaration by a suitably qualified personiii as to the unencumbered value of the property or to provide such other evidence of that value as the Chief Commissioner thinks fit. The TAA does not prescribe the circumstances in which evidence of value will be required.
- A decision to require a person liable to duty to provide evidence of value, and the type of evidence required, is at the discretion of the Chief Commissioner. This ruling provides some general guidelines as to when evidence of value will be required and sets out the types of valuations or other evidence of value acceptable to the Chief Commissioner.
Note that where a taxpayer has been required to provide evidence of value, the Chief Commissioner may, pursuant to section 17A(2) of the TAA, recover from the taxpayer the cost of obtaining a valuation in circumstances where:
- the taxpayer does not provide this evidence of value within 60 days of receiving the request; or
- the value provided by the taxpayer differs by at least 10% from the value in the valuation obtained by the Chief Commissioner.
Purpose of Ruling
Ruling
When evidence of value is required
- Evidence of value will usually be sought to verify the adequacy of the consideration in the following circumstances:
- there is no consideration for the transaction;
- the consideration, or any part of it, is non-monetary in natureiv;
- the parties to the transaction are related or associated personsv, or there is evidence of a broader relationship between the parties or their associates;
- in the case of an agreement for sale, there is no selling agent;
- the same legal or professional firms are acting for both parties;
- the transaction relates to fractional interests in property; or
- the Chief Commissioner is not satisfied that the consideration is an adequate indication of the unencumbered value of the property (for example, where the consideration appears low for the type of property being sold).
- Where there is monetary consideration for a transaction between unrelated parties, evidence of value will usually only be required if there is some indication that the monetary consideration is less than the unencumbered value of the property. In most cases where the parties to a transaction are unrelated and acting at arm’s length, duty will be assessed on the amount of the consideration.
- It is important to determine whether or not the parties are dealing with each other at arm’s length. Therefore, any relationship between the parties or their associates is relevant, as associated parties may not act independently in forming their bargain in the same manner that unrelated or non-associated parties would normally do.
- Even if there is no relationship between the parties, evidence of value will still be required if the Chief Commissioner is not satisfied that the parties to the transaction have been dealing with each other at arm's length. Examples may include (but are not limited to) situations where:
- the consideration for a transaction appears to have been apportioned between dutiable property and other property in an attempt to minimise the duty payable;
- the consideration is based on historical accounting values or appears to have been settled on for income tax planning or accounting reasons and does not reflect the unencumbered value of the assets; or
- uncommercial or unusual terms are evident in the transaction.
- Evidence of value of the property will be required as at the date of exercise of an option where:
- the option is between related parties;
- the option is between unrelated parties and is exercised more than 12 months after the grant of the option; or
- there is a change to the property between grant and exercise of the option, such as the making of improvements or rezoning of land.
Date of evidence of value
- A liability to duty on a dutiable transaction arises on the date prescribed by the Act (sections 12 (1) and 9 (2) (c)). In most cases, this will be the date of first execution of the instrument that effects the dutiable transaction (section 12 (2)). While evidence of value should be provided as at the date the liability arises, acceptable evidence of value within 3 months of that date will generally be accepted. If the evidence of value is at a date more than 3 months from the date the liability arises, it may be accepted provided there has been no change affecting the value of the dutiable property during that time.
- In the case of a dutiable transaction involving an interest in land, evidence of value more than 3 months and up to 12 months from the date of the transaction may be accepted if accompanied by a declaration stating that no improvements have been effected, nor any zoning changes or lifting of restrictive conditions have been made by Council, between the date of the valuation and the date of the dutiable transaction. The period of 12 months referred to above may be increased to 18 months at the discretion of the Chief Commissioner depending on the state of the property market and the location of the property. Under the TAA, penalties may be imposed for providing misleading and/or false information. The maximum amount of penalty is 500 ($55,000) penalty units for a first offence, or 1,000 ($110,000) penalty units or 2 years imprisonment, or both for a second or subsequent offence.
Evidence of value of land
- Where evidence of value of land is required to determine the adequacy of the consideration as outlined in paragraphs 4, 7 or 8 above, the following will generally be acceptable:
- a “declaration by a suitably qualified person” as outlined in paragraph 12;
- a private opinion or expression of value by a suitably qualified person identifying the specific property;
- an agreement which is evidence of a recent arm's length sale of the property; or
- a valuation required by a financial institution for finance purposes, with the proviso that such valuations are often conservative and may indicate that the property has a higher unencumbered value.
If this evidence of value indicates that the consideration is adequate, no further evidence of value will generally be required.
- If the above evidence of value indicates that the unencumbered value of the land exceeds the consideration, a "declaration by a suitably qualified personvi" will be required, being either:
- a valuation by the Valuer General of the improved land value; or
- a valuation by a suitably qualified person of the full market value of the dutiable property, being a comprehensive valuation of the property in its present condition (as at the date of the dutiable transaction or within the parameters outlined in paragraph 9 and 10) indicating that an inspection of the property has been undertaken. Brief market appraisals, estimates of value or other statements that do not indicate a full inspection of the subject property has been undertaken will not be acceptable.
- If there is no consideration or nominal consideration, evidence of value must consist of either a "declaration by a suitably qualified person" as referred to in paragraph 12 or an agreement which is evidence of a recent arm's length sale of the property.
- Where the property is vacant unimproved land, the most recent notice of valuation by the Valuer General for rating purposes may be acceptable.
Possessory applications
- Where the land is the subject of a possessory application under the Real Property Act 1900, section 52 of the Act charges duty on the land value of the land within the meaning of the Valuation of Land Act 1916. An extract of valuation by the Valuer General of the unimproved land value as last determined will be accepted. If not available, a letter from a suitably qualified person as to the unimproved land value will be accepted.
Evidence of value of partnership interests
- A partnership interest is defined in section 11(1) (i) as an interest in a partnership that has partnership property that is dutiable property. Section 21(4) states that the dutiable value of a partnership interest is to be determined in accordance with section 29, which determines the dutiable value by reference to a proportion of the greater of:
- the value of the partnership interest, and
- the consideration for the transfer of the partnership interest.
The proportion is determined by reference to the unencumbered value of the dutiable property of the partnership and the unencumbered value of all assets of the partnership.
- If an interest in a land-related asset is transferred as a result of the transfer of the partnership interest, the dutiable value of the partnership interest is to be reduced by the dutiable value of the interest in the land-related asset that is transferred, but only if ad valorem duty has been paid or is payable on the transfer of the interest in the land-related asset. Each of the following is a land-related asset:
- land in New South Wales
- transferable floor space
- a land use entitlement
- an interest in an item of dutiable property referred to above.
- In some cases, particularly professional partnerships such as those of accountants and solicitors, transactions relate to only small fractional interests in dutiable property. Where the parties are acting at arm's length, duty will be assessed on the full consideration unless the lodging party provides evidence of the values required to determine the proportion. Where the parties are acting at arm's length and there is no consideration, no duty will be payable.
Evidence of value of other dutiable property
- For dutiable property other than land or interests in land, evidence of value will generally not be required unless there is some indication that the transaction is for less than full consideration or that the parties did not deal with each other at arm's length. A declaration by a suitably qualified person will not be required if other reasonable evidence of value is available. For example, where a transaction involves a life estate or remainder estate, the value of the interest passing will be determined using the actuarial life tables to apportion the values of the property between the various interests, if relevant information is supplied by the lodging party (eg, the date of birth of the life tenant and a current valuation of the property). [Note that section 306 of the Act provides that regard may be had to the death of a person having a life estate occurring before the assessment of duty is actually made in ascertaining the value of the interest].
- However, if the taxpayer is dissatisfied with the valuation determined on such a basis, or where the Chief Commissioner is unable to determine the value, a more formal valuation will be required, being a "declaration by a suitably qualified personvii". Such a valuation must be by a person whose business it is to make valuations of the particular class of property in question, such as an accountant, actuary or a suitably qualified person.
i All references to sections are to the Duties Act unless otherwise indicated
ii See Revenue Ruling DUT 045v2 for more information on valuation relating to landholder transactions.
iii See Revenue Ruling DUT 044v2 for definition of suitably qualified persons.
iv The Chief Commissioner will accept the methodology in the table in CPN 027 in relation to non-monetary consideration in the form of lessee’s improvements.
v See Dictionary in the Duties Act 1997 for meaning of “associated person” and “related person”
vi See Revenue Ruling DUT 044v2 for definition of suitably qualified persons.
vii See Revenue Ruling DUT 044v2 for definition of suitably qualified persons.