Australian Government - Australian Taxation Office crest

SECOND COMMISSIONER OF TAXATION

Mr Ali Noroozi
Inspector-General of Taxation
GPO Box 551
SYDNEY NSW 2001

Dear Ali

Review into the ATO's administration of valuation matters

Thank you for the opportunity to comment on the final draft on the review into the ATO's administration of valuation matters.

We agree with eleven of the twelve recommendations, noting that many of the recommendations have multiple parts. However we disagree with one aspect of one recommendation. I also note that recommendations 3.1, 3.2 and 3.3 are matters for Government.

Specifically, in relation to recommendation 4.8(c), while we agree with the objective of the recommendation to promote the use of Market Valuation Private Rulings, we are unable to agree to bear the cost. In this regard we are not a position to reliably forecast costs or savings that may arise from an unknown increase in applications.

Our detailed response to your recommendation, including the updated recommentations, is attached at Annexure 1.

Finally, I would like to acknowledge the efforts of all involved in undertaking this review.

If you require further information on our response, please contact Debra Kuhne, on phone (02) 6058 7326.

Yours sincerely

[SIGNED]

Neil Olesen
Second Commissioner
Australian Taxation Office

26 September 2014


Recommendation 3.1

The IGT recommends that, in designing tax laws, the Government consider:

  1. requiring valuations only where the relevant regulation impact statement demonstrates that it would be of the 'highest net benefit'; and
  2. where valuation is required, provide safe harbours or allow the use of existing valuations obtained for other purposes such as accounting standards or as part of natural business systems.

ATO response

In relation to 3.1(a) – Matter for Government

In relation to 3.1(b) – Matter for Government

Recommendation 3.2

The IGT recommends that the Government consider consulting with small businesses and their representatives with a view to reducing the reliance on valuations to access the small business CGT concessions.

ATO response

Matter for Government

Recommendation 3.3

The IGT recommends that, where eligibility criteria for tax concessions or benefits require valuation, the Government should consider the use of tapering to avoid disproportionate outcomes that may arise due to minor differences in valuations.

ATO response

Matter for Government

Recommendation 4.1

The IGT recommends that the ATO:

  1. continue consultation with stakeholders to develop and implement, where possible, administrative safe harbours that may reduce compliance costs associated with valuation; and
  2. develop and make publicly available a tool that provides an indication as to the eligibility of a taxpayer for the small business CGT concessions through the maximum net asset value test.

ATO response

In relation to 4.1(a) – Agree

In relation to 4.1(b) – Agree

Comments

In relation to 4.1(b) – We agree the tool would be useful and will consider against other competing priorities.

Recommendation 4.2

The IGT recommends that the ATO:

  1. continue to develop a strategy to identify the various valuation risks and the compliance action for mitigating those risks;
  2. where ATO compliance officers identify valuation risks:
    1. as a first step, use valuers to undertake a 'preliminary risk assessment' to assess such risk;
    2. agree or agree to disagree on relevant legal or factual issues; and
    3. consider whether further action, such as commissioning a critique or a full valuation, is required, taking into account factors such as the cost associated with each option as compared to the disputed amount; and
  3. where a taxpayer's assessment is to be amended as a result of a critique or full valuation, provide the relevant details contained in the preliminary risk assessment, critique and/or full valuation to that taxpayer.

ATO response

In relation to 4.2(a) – Agree

In relation to 4.2(b) – Agree

In relation to 4.2(c) – Agree

Comments

4.2(b) We agree with the steps outlined noting the detail and focus on each step will vary dependant on the complexity of the valuation issue and timely interaction and co-operation of the taxpayer.

4.2(c) In rare circumstances the Commissioner may not be able to provide details to the taxpayer, for example, where the release of the material could cause harm.

Recommendation 4.3

The IGT recommends that the ATO:

  1. in consultation with stakeholders, develop a standard template for instructing valuers; and
  2. where a material valuation risk is identified during pre-lodgement processes, conduct a risk assessment of the taxpayer's valuation instructions with a view to reaching agreement on the instructions and/or jointly instructing an independent valuer.

ATO response

In relation to 4.3(a) - Agree

In relation to 4.3(b) – Agree

Recommendation 4.4

The IGT recommends that the ATO publish more detailed guidance on the application of penalties to valuation discrepancies.

ATO response

Agree

Comments

We will address this action by application of Recommendation 5.3 of the Inspector General's Review of Penalties by providing explicit examples relating to valuations in our guidance products.

Recommendation 4.5

The IGT recommends that the ATO use legal and valuation expertise, including external expertise, to:

  1. assist in areas such as identifying issues, gathering information and instructing valuers; and
  2. provide training to staff to build capability for the long term.

ATO response

In relation to 4.5(a) – Agree

In relation to 4.5(b) – Agree

Recommendation 4.6

The IGT recommends that the ATO:

  1. allow taxpayer access to its instructions to valuers; and
  2. only use publicly available information or information that can be disclosed to the taxpayer in arriving at its market valuation.

ATO response

In relation to 4.6(a) – Agree

In relation to 4.6(b) – Agree

Comments

In rare circumstances the Commissioner may be obliged to take into account information that cannot be disclosed in order to meet his legal obligations to correctly assess.

Recommendation 4.7

Where a valuation dispute is primarily due to the professional judgement of valuers engaged by each party, the IGT recommends that the ATO provide guidance to its staff on when they should accept the taxpayer's point estimate. Such guidance may provide a number of methods and when each may be appropriately used. Examples of these methods may include applying a 10 per cent tolerance to point estimates or obtaining an opinion from the ATO's valuer as to the reasonableness of the taxpayer's point estimate.

ATO response

Agree

Recommendation 4.8

The IGT recommends that the ATO:

  1. promote the availability of Market Valuation Private Rulings (MVPR);
  2. jointly appoint valuers with taxpayers for MVPR purposes and allow the taxpayer greater access to the valuer; and
  3. consider bearing some of the valuation costs of MVPR to reflect potential ATO savings.

ATO response

In relation to 4.8(a) – Agree

In relation to 4.8(b) – Agree

In relation to 4.8(c) – Disagree

Comments

In relation to 4.8(c) – While we agree with the objective of the Recommendation to promote the use of Market Valuation Private Rulings, we are unable to agree to bear the cost. We are not in a position to reliably forecast costs nor savings that may arise from an unknown increase in applications.

Recommendation 5.1

The IGT recommends that the ATO:

  1. ensure that it facilitates taxpayer requests for expert valuer conferencing on competing valuations to reach a common understanding of inputs and methodologies used by each valuer, the resulting valuation and the reasons for it;
  2. make taxpayers aware that they can request expert valuer conference as mentioned at (a) above; and
  3. in its guidance relating to valuations, update the range of dispute resolution approaches that may be used to include joint instruction of separate valuers, joint appointment of valuers and expert valuer conferencing.

ATO response

In relation to 5.1(a) – Agree

In relation to 5.1(b) – Agree

In relation to 5.1(c) – Agree

Comments

The ATO agrees that more may need to be done to improve awareness and facilitate access. Taxpayers may already request expert valuer conferencing. Paragraphs 57-59 of Practice Statement PS LA 2013/3 Alternative Dispute Resolution (ADR) in ATO Disputes covers the process of expert valuer conferencing to discuss how their different valuations were obtained.