Issue
Will the Commissioner exercise his discretion under paragraph 139FB(1)(b) of the Income Tax Assessment Act 1936 (ITAA 1936) to approve the use of the net asset value methodology as a reasonable method of calculating the arms length value of the shares of an unlisted company?
Decision
Yes. The Commissioner will exercise his discretion under paragraph 139FB(1)(b) of the ITAA 1936 to approve the use of the net asset value methodology as a reasonable method of calculating the arms length value of the shares of an unlisted company.
Facts
The taxpayer company is formed to provide share broking and retail financial services in Australia. The taxpayer sets up an employee share acquisition scheme which complies with the provisions of Division 13A of the ITAA 1936. The taxpayer is not listed on the Australian Stock Exchange. The value of the shares allocated to employees under the scheme will be calculated using the net asset valuation methodology. The calculations will be done quarterly. The net asset value will be determined by applying accounting standards as required by corporations law and using the values set out in the consolidated accounts of the company.
Reasons for Decision
Paragraph 139FB(1)(b) of the ITAA 1936 provides the Commissioner with the discretion to accept the taxpayer company's particular valuation methodology, for the purposes of Division 13A of the ITAA 1936, as a reasonable method of calculating the arms length value of unlisted shares. The methodology must produce an accurate estimation of that value, in the absence of the shares being listed on the Australian Stock Exchange.
Having regard to the following factors: • the particular industry the company operates in • the value of the net assets of the company; and • the level of earnings the company is generating
the Commissioner accepts that the net asset valuation methodology will produce an accurate estimate of the true arms length value of the unlisted shares allocated to the employees under the scheme.