Summary of stakeholder concerns

4.1 Stakeholder concerns with the ATO's administration of valuation matters and associated risk management, include:

  • the lack of administrative safe harbours;
  • the ATO's assessment of valuation risk;
  • the ATO's reluctance to review taxpayers instructions to valuers before taxpayers' returns are lodged;
  • the lack of guidance with respect to penalties;
  • the valuation capability of the ATO;
  • difficulties for taxpayers in accessing the ATO's instructions to its valuers;
  • the taxpayer's burden of proof and valuation ranges; and
  • the underutilisation of the Market Valuation Private Rulings (MVPR) process.


ATO management of valuation risk

4.2 Part of the ATO's risk management framework is to address risks of non-compliance with various tax obligations.97 Where the tax provision effectively requires the taxpayer to obtain a valuation, the reliability of the valuation may present a risk factor which increases the likelihood and consequence of the taxpayer not reporting tax liabilities accurately.

4.3 For example, the ATO has specifically identified non-compliance with the small business CGT concessions as a risk on which it is focussing.98 As set out in the previous chapter, this risk includes accurately valuing assets to verify eligibility for the concession. The ATO has advised that it has no specific enterprise-wide framework for managing these valuation risks as they are dealt with as part of the risks associated with the relevant provisions.

4.4 The ATO had, however, initiated a research project prior to the start of this IGT review to better understand the risks posed by valuations at a more strategic level, rather than on a provision by provision basis. The ATO supplied some documentation relating to this research project, parts of which are reproduced in Appendices 2 and 3 of this report. The ATO decided to discontinue this project as it considered that the IGT review would cover these issues.

4.5 In examining whether a particular valuation may be unreasonable, the ATO generally considers the integrity of the valuation process, objectivity and support for the inputs used, as well as the skills, experience and professional qualities of the valuer. As the tax laws do not, generally, impose limitations on who is permitted to perform a valuation99 and given the lack of uniform professional standards, the ATO examines the professional qualities of valuers on a case-by-case basis. The ATO considers that valuations will be more reliable where they are undertaken by those who have:

  • specific knowledge, experience and judgement in their field, which may be evidenced by their formal qualifications, licences and membership of appropriate industry and professional bodies;
  • independence from the interests of the taxpayer;
  • personal integrity which may be indicated by any applicable external regulation requirements; and
  • competence which may be indicated by the process and market value definition used, the reasons why a particular methodology was chosen and the assumptions and information relied upon.100

4.6 The ATO has advised that the total numbers of taxpayer valuations that have been reviewed and not challenged is not easily extracted from their systems and is not separately reported. However, a limited subset of this population may be gleaned from the cases where the ATO sought external valuation expertise. Approximately one-third of taxpayer valuations were not challenged after the ATO sought external valuer advice.

4.7 The areas in which the ATO seeks valuation input can be used as a proxy for identifying areas of tax law that the ATO currently considers pose the greatest valuation risk. Table 2 below shows these areas in terms of valuation engagements, their cost and relative proportions.

Table 2: Tax law areas in which the ATO engaged external valuation input
Tax area Engagements % of engagements Approved Expenditure % of expenditure
Capital gains tax 93 47% $3,027,733 51%
CGT other 38 19% $802,337 13%
Market value substitution 21 11% $427,824 7%
Small business concessions 16 8% $298,730 5%
Taxable Australian Real Property 9 5% $1,563,365 25%
Off-market share buy-back 9 5% $125,041 2%
Other 35 18% $978,466 15%
GST 17 9% $180,811 3%
Capital allowances 16 8% $930,814 15%
Debt recovery 11 6% $89,307 1%
Transfer pricing 10 5% $443,014 7%
Consolidation 9 5% $360,023 6%
Anti avoidance 6 3% $145,029 2%
TOTAL 197 100% $6,344,761 100%

Source: ATO Valuation Gatekeeper Unit (VGU) and RDR engagements from 1 July 2011 to 31 December 2013. Percentages rounded to the nearest one per cent and may not add up to 100 per cent.

4.8 From the above table, it is clear that the main area in which the ATO has engaged external valuation advice is CGT. This area has been further broken down into different sub-categories.

ATO compliance processes

4.9 The ATO's compliance activities usually involve gathering information from taxpayers or third parties to ascertain the correctness of statements made in income tax returns, activity statements and other returns or schedules lodged with the ATO. Where a tax provision is reliant on concepts of 'market value', the ATO may seek and test evidence of the market value and any relevant valuations undertaken.

4.10 The testing of valuation evidence may be undertaken internally by ATO officers, or by external valuers engaged by the ATO. These external valuers may have been Australian Valuation Office (AVO) staff (which was a business unit within the ATO but has since closed from 1 July 2014 – see paragraph 4.63 below) or valuers from the private sector. Each ATO business line has specific procedures for testing a taxpayer's valuation. The means by which the ATO obtains valuation advice is discussed in further detail below.

Different types of valuation services received by the ATO

4.11 According to the APES 225 Valuation Services, the services provided by valuers are a valuation engagement, a limited scope valuation engagement and a calculation engagement.

4.12 Valuations engagements are an assignment where the valuer is 'free to employ the Valuation Approaches, Valuation Methods, and Valuation Procedures that a reasonable and informed third party would perform taking into consideration all the specific facts and circumstances of the Engagement or Assignment available to the Member at that time.'101

4.13 Limited scope valuation engagements are assignments where, because of an imposed limitation, the valuer is potentially restricted from employing approaches 'that a reasonable and informed third party would perform taking into consideration all the specific facts and circumstances' available to the valuer at that time, 'and it is reasonable to expect that the effect of the limitation or restriction on the estimate of value is material.'102

4.14 Calculation engagements require the valuer and the client to agree on the valuation approaches and methods the valuer will employ.103

4.15 In addition to these three valuation products, the ATO had developed additional valuation products with the AVO. These were reflected in a Memorandum of Understanding (MOU) between the AVO and ATO. These additional products are the preliminary risk assessment (PRA), the valuation critique and technical advice.

4.16 PRAs are a 'high-level assessment of a valuation report that identifies areas of weakness' which include consideration of the appropriateness of the methodology, the information relied upon and the assumptions employed.104

4.17 The ATO has advised that the valuation critique is defined according to IVSC guidance material which is outlined in Chapter 2 of this report. There is no ATO staff instruction prohibiting officers from amending taxpayers' assessments on the basis of a critique. However, senior ATO management105 expect any ATO adjustment of a taxpayer's assessment, which relies on the valuation obtained by a taxpayer, to be based upon a full alternative ATO valuation. The reason is that, whilst an ATO valuer's critique of the taxpayer's valuation would identify weaknesses in the taxpayer's valuation, of itself, the critique is insufficient for making an adjustment.

4.18 Technical advice provides written reports on various technical valuation related matters that do not include PRA, valuation critique or calculation of a value. The MOU describes this service as answering:

particular valuation related queries raised by the ATO case teams in regards to their audit or review at early stages, before determining the next course of action or forming the ATO's position in regards to the particular compliance issue.106

4.19 ATO data indicates that other valuation services have also been obtained from the AVO or external valuers that do not correspond to the above descriptions. Furthermore, some engagements have descriptions which are a combination of the above valuation products. These have been included in a separate row in the table below.

Table 3: Types of valuation products obtained by the ATO between 1 July 2011 and 31 December 2013
Products Number Approved
approved expenditure
Technical advice only 32 $445,231 $13,913
Preliminary risk assessment only 1 $9,240 $9,240
Critique only 30 $667,734 $22,257
Limited scope valuation only 11 $353,007 $32,091
Full valuation 63 $1,165,143 $18,494
Combinations of the above or other items 36 $901,420 $25,039
Total 173 $3,541,775 $20,473

Source: ATO. Figures only include VGU compliance related engagements and not dispute related engagements.

ATO Public Groups and International

4.20 The ATO's Public Groups and International (PG&I) business line manages compliance for 'all listed entities, all foreign owned entities and the ATO's international strategy.'107 The ATO's Large business active compliance manual – income tax108 (Large Business Compliance Manual) publication sets out the ATO's expectations for compliance officers in the PG&I business line when undertaking risk reviews, audits and pre-lodgment compliance reviews (PCRs). When planning for risk reviews, officers are to consider the engagement of valuers:

Matters involving valuation-related tax risks should have the expertise of a valuer to assist in risk assessment, adjustments and early dispute resolution.

Having a risk that has a valuation component does not automatically mean that a market valuer needs to be engaged. It does, however, mean the use of a valuer needs to be considered.109

4.21 After information has been gathered and analysed, the compliance officer may conduct an internal workshop to develop an understanding of the business, identify relevant risks, further develop risk hypotheses and determine any further information or evidence required. The workshop participants may include the relevant risk manager and internal technical leaders. Specialists or experts who may attend such workshops include 'Business Valuation Unit' staff.110 Business Valuation Unit staff were officers within the AVO who specialised in business and corporate valuations. The Business Valuation Unit was also known as the Corporate Valuation Unit.

4.22 When initiating and planning an audit (most audits are the result of a previous risk review confirming a risk), compliance officers are to consider, amongst other things, valuation related risks.111

If the case involves valuation-related tax risks, the case officer should seek the expertise of a valuer to assist in risk assessment, adjustments and early dispute resolution…

If a significant tax risk has been identified involving a market value or valuation, it is best practice to:

  • obtain the relevant documentation supporting the market value relied on
  • seek the early engagement of a suitable valuer through our Valuation Gatekeeper and/or an economist
  • have due regard to the advice of the valuer in relation to the possible range of market values or the valuation process.112

4.23 From 1 July 2011 to 31 December 2013, the PG&I business line accounted for 35 (20%) of the compliance related engagements of external valuers by the VGU and for $1,141,763 (32%) of associated approved expenditure.113

ATO Private Groups and High Wealth Individuals

4.24 The ATO's Private Groups and High Wealth Individuals (PGH) business line manages compliance for taxpayers that are largely represented by SMEs, wealthy Australians and high wealth individuals.114 Large business taxpayers that are privately held are also managed by this business line.

4.25 The PGH business line's general approach to compliance is outlined in the publication Tax compliance for small-to-medium enterprises and wealthy individuals

(Tax Compliance for SMEs).115 The publication includes 'distortions and inconsistencies in market valuations and apportionments' amongst a list of matters that attract the attention of the ATO.116

4.26 The guide does not outline how valuation expertise may be called upon to assist the ATO to determine valuation risks during compliance activities. It does, however, refer to valuation issues in the section regarding dispute resolution:

In relation to valuation matters, both parties may agree on the appointment of a third party expert to either critique or conduct a valuation, and commit to accept the outcome of that process.117

4.27 From 1 July 2011 to 31 December 2013, the PGH business line accounted for 90 (52%) of compliance related engagements of external valuers by the VGU and for $1,778,444 (50%) of associated approved expenditure.118

Small Business and Individual Taxpayers

4.28 The SBIT business line is responsible for managing compliance for businesses with turnovers below $2 million as well as individual taxpayers who are not covered by the PGH business line. Small businesses with turnovers above $2 million are managed by the PGH business line.

4.29 Among the compliance risks managed by the SBIT business line is CGT. Non-compliance with the small business CGT concessions is one component of that CGT risk. The ATO has identified 'incorrect valuation advice' as one of the sources behind non-compliance with the small business CGT concessions regime.119

4.30 The number of taxpayers that claimed at least one of the small business CGT concessions during the 2009–10 and 2010–11 income years was 27,841 and 23,984 respectively. Taxpayers indicate their choice to apply the small business CGT concessions through the CGT schedule, which is usually lodged with the taxpayer's income tax return. The schedule, however, does not indicate which of the four tests (the three SBE tests or MNAV test) the taxpayer has applied to access these concessions. During the review, the ATO advised the IGT that, due to data limitations, it could not determine which SBE tests or MNAV test the claimants were using.

4.31 From 1 July 2011 to 31 December 2013, the SBIT business line accounted for 10 (6%) of compliance related engagements of external valuers by the VGU and for $188,860 (5%) of associated approved expenditure.120

4.32 Between 1 July 2011 and 31 December 2013 the ATO conducted or were still conducting 40 compliance cases in which the taxpayer applied the MNAV test. Of these cases, 11 were risk reviews and the remainder were audits. The outcomes of these reviews and audits are listed in the tables below.

Table 4: Outcomes of SBIT reviews of taxpayer claims of small business
CGT concessions using the MNAV test, 1 July 2011 – 31 December 2013
Outcome Number
No further action 3
Escalated to audit, but not on the valuation issue 1
In progress 1
Amended assessment due to voluntary disclosure 1
Escalated to audit including the valuation issue 5
Total reviews 11

Source: ATO

Table 5: Outcomes of SBIT audits of taxpayer claims of small business
CGT concessions using the MNAV test, 1 July 2011 – 31 December 2013
Outcome Number
No further action 18
In progress 7
Amended assessment 4
Total audits 29

Source: ATO

4.33 The ATO has advised that procedures for testing the taxpayer's valuation is not finalised but have provided the IGT with the latest draft procedure.121 This draft procedure specifies that during risk reviews of small business CGT concession cases, compliance officers must first ascertain whether the taxpayer is applying the SBE test or the MNAV test. If taxpayers are applying the MNAV test, taxpayers are to provide evidence for how they have met the MNAV test and related financial details. This evidence may include supplying a valuation report from a valuer and the accompanying instructions. Where the taxpayer has undertaken their own valuation, taxpayers would need to show how they calculated the relevant values.

4.34 The compliance officer then assesses the quality of the information provided against the risk factors outlined in the ATO publication Market valuation for tax purposes.122 This risk matrix is reproduced in Appendix 4. Discrepancies with the risk matrix are communicated to the taxpayer who then has an opportunity to revise their valuation and submit a new valuation.

4.35 Taxpayers may provide revised valuations to the ATO which are then considered by the case officer. Case officers use a customised spreadsheet to assist in determining whether the taxpayer's valuation is acceptable. The spreadsheet requires the case officer to input the taxpayer's financial details and applies pre-set formulas and ratios to give an ATO estimation of the taxpayer's net asset values.

4.36 The ATO includes a 'safety margin' in the spreadsheet, so that the ATO estimate must be a certain margin higher above the taxpayer's valuation before the ATO will consider formally challenging the taxpayer's valuation. As the ATO generally does not use external valuers for this process, such a challenge would only occur if the ATO was confident that its valuation was 'well above' the MNAV threshold of $6 million. A case officer is required to consider putting the case to a panel of senior officers to assist with deciding the progress of the case. Furthermore, SBIT officers have also previously sought the assistance of an AVO officer.

4.37 Where the ATO's valuation is higher than the safety margin above the MNAV threshold, the ATO has advised that it would amend those assessments without resorting to any further valuation input from external valuers.123

4.38 The following table lists each compliance business line along with their approved external valuation engagements and their approved expenditure. These figures exclude valuations requested by the Review and Dispute Resolution (RDR) business line as those relate to disputes rather than compliance cases.

Table 6: ATO external valuation engagements by compliance business line, 1 July 2011 to 31 December 2013
BSL Engagements % of
total engagements
% of total
approved expenditure
ATP 5 3% $73,370 2%
CS&C 3 2% $85,750 2%
Debt 10 6% $88,707 3%
ITX 19 10% $183,561 5%
PG&I 35 20% $1,141,763 32%
PGH 90 52% $1,778,445 50%
SBIT 10 6% $188,860 5%
SPR 1 1% $1,320 0%
Total 173 100% $3,541,775 100%

Note: Figures and percentages are rounded.

Source: ATO information, VGU only data.

ATO staff guidance on using valuers

4.39 In addition to the ATO's public guidance relating to valuations, such as the Market valuation for tax purposes, the Large Business Compliance Manual and the Tax Compliance for SMEs publications mentioned above, ATO officers can refer to a number of internal guides.

4.40 One ATO staff guide124 indicates that 'matters involving valuation-related tax risks should have the expertise of a valuer to assist in risk assessment, adjustments and early dispute resolution.' However, there is limited guidance for ATO officers to assist them to understand when a valuation issue is likely to require such expertise.

4.41 ATO officers may engage valuation expertise from the private sector through a formal procurement process which is explained in greater detail below.

4.42 An exception to the above requirement to obtain valuation expertise prior to adjusting a taxpayer's assessment is the SBIT business line's process for verifying compliance with the MNAV test of the small business CGT concession.

4.43 More specific guidance includes the ATO intranet page 'Using valuers in litigation' which highlights the role of valuers as expert witnesses in court.125 Readers are directed to Federal Court Practice Note CM7 Expert witnesses in proceedings in the Federal Court of Australia for further information. The intranet page also provides some guidance about 'tolerances' and the extent to which divergences in opposing market values would attract judicial support. The page refers readers to Accounting Standard AASB 1031 as a reference point for determining materiality and how it could be translated into a permissible margin of error for valuation cases. The page nevertheless highlights that the ATO should consider the risk involved.

4.44 The ATO intranet page 'Expert witness' provides guidance to staff regarding the use of experts (not just valuers) during audits and litigation.126 The page highlights some of the risks associated with using valuers in tax disputes, such as ensuring they are appropriately instructed as failure to do so may result in the court disregarding the expert's report.

4.45 The ATO publication Our approach to information gathering, outlines the general principles ATO officers apply when gathering information for risk assessment or verification purposes. The guide does not provide any specific guidance in relation to evidencing valuations. According to this guide, however, one of the general expectations that taxpayers can have of the ATO is that the ATO will 'engage technical experts and information-gathering specialists at the earliest opportunity when needed'.127

When external valuers are to be engaged

4.46 When external valuers should be engaged to provide valuation assistance during a compliance case will depend on when the valuation issue emerges within the context of the specific tax risk being addressed.

4.47 For example, in Division 7A cases, the valuation of a distributable surplus may only occur after consideration of any deemed dividend.128 Such a case may continue for a long period of time before the legal and factual issues are resolved. Once resolved, the valuation task may begin late in the case timeframe.

4.48 In contrast, the Commissioner's revaluation discretion in the thin capitalisation regime appears to require the input of an expert valuer as an inherent part of the legal and factual analysis. This discretion may only be exercised if the Commissioner considers the taxpayer has undervalued its liabilities or overvalued its assets.129 In order for the Commissioner to consider that an undervaluation or overvaluation has occurred, significant valuation expertise must be brought to bear early on in the case.

4.49 The ATO has provided information about the cases in which it has sought valuation expertise. However, variations in the different types of cases and how valuation issues emerge prevent meaningful analysis of the timeliness of the ATO's engagements of valuation expertise.

ATO use of external valuers

4.50 The ATO's compliance personnel may obtain the services of external valuers to assist in risk identification, critiquing existing valuations or performing a full alternative valuation. The ATO's personnel requesting these services must obtain VGU consent in most instances.

VGU engagements

4.51 The VGU is responsible for all valuation engagements with the private sector with some exceptions. The VGU receives referrals from compliance teams to engage a valuer for a particular task. The VGU may provide advice to compliance teams such as whether a valuer is required or if the issue in dispute relates to an underlying legal issue rather than a valuation. Where the VGU decides that a valuer may be engaged, it obtains quotations for the proposed work.

4.52 The relevant compliance team requests approval for the expenditure from a delegate in the compliance area based on the chosen quotation. Once approved the VGU engages the valuer.

4.53 In addition to providing advice to compliance teams and facilitating the engagement, the VGU is responsible for ensuring that contracts with private sector valuers comply with government requirements.

4.54 The VGU may not consent to the engagement of a valuer for a variety of reasons, such as:

  • the issue is not a valuation issue;
  • potential valuation costs are disproportionate to the revenue at risk; and
  • compliance teams may close a case beforehand.130

4.55 The VGU received 331 referrals from compliance teams to obtain a valuation or valuation advice between 1 July 2011 and 31 December 2013. As set out in the Table 7 below, 173 of these referrals were approved with an aggregated maximum budget for expenditure of $3,541,775. The actual amount expended was $2,944,823.

4.56 Where approval is given, the VGU will also provide advice on the most appropriate valuer for the circumstances. Valuers were sourced from the panel of valuers, non-panel valuers and AVO staff.

ATO panel of valuers

4.57 The ATO currently has a panel of private sector valuers under a Standing Offer arrangement which establishes a pre-agreed range of terms and conditions, including rates of remuneration. These valuers are also security cleared so they are able to deal with confidential taxpayer information without clearance being required on a per engagement basis which avoids some delay when engaging valuers.

4.58 Private sector valuation firms had tendered for a place on this panel. As a result of which there are currently 11 valuation firms on this panel. The current standing offer period is July 2012 to July 2015.

4.59 During 1 July 2011 to 31 December 2013, expenditure of $2,517,684 was approved for panel valuers, with $2,083,893 incurred in actual expenses covering 81 approved engagements (see Table 7 below).

Non-panel valuers

4.60 The ATO may not be able to engage a private sector valuer from the ATO panel for a number of reasons. For example, the valuation task may require a type or level of expertise that none of the panel valuers are willing or able to perform. Additionally, some panel valuers may have a conflict of interest, e.g. they may have already acted for, or are currently acting for the taxpayer which is in the relevant dispute with the ATO. In these circumstances, the ATO may engage non-panel valuers.

4.61 The VGU is also responsible for selecting the most appropriate non-panel valuer that represents value for money and has the right skills and capacity. These non-panel valuers must also undergo security clearances before being provided with taxpayer information.

4.62 During 1 July 2011 to 31 December 2013, expenditure of $279,356 was approved for non-panel valuers, with $177,413 incurred in actual expenses covering 14 approved engagements (see the Table 7 below).

The Australian Valuation Office

4.63 The AVO was a business unit within the ATO which serviced the ATO as well as several other government departments on a commercial fee-for-service basis. The AVO competed with private sector valuers to provide these services to the government sector. During 2012-13, the AVO mainly provided services to the Department of Human Services, which accounted for 93 per cent of its valuation output.131

4.64 The AVO was required to meet the Australian Government Competitive Neutrality Guidelines. In this respect, the AVO had been the subject of an investigation by the Australian Government Competitive Neutrality Complaints Office in 2004, which assessed the conduct and structure of the AVO against the guidelines.132

4.65 The ATO and AVO have historically had an MOU to determine the type of valuation work the AVO would provide to the ATO and the circumstances in which that work would take place.

4.66 As noted above, the SBIT business line may have called on the services of AVO staff to assist with risk identification with valuation issues. As the AVO charged all clients on a commercial fee-for-service basis, the engagement of AVO staff for ATO valuation work was also required to go through the VGU.

4.67 The AVO was closed on 30 June 2014. Until 14 June 2014, certain legislation required that only the AVO could conduct certain valuation work. For example, taxpayers were required to lodge valuation applications to the General Manager of the AVO in relation to deductions for donations of certain property.133 However, the relevant legislation has now been amended requiring applications to be lodged with the Commissioner. Since the closure of the AVO, the ATO now directly employs six former AVO valuers.

4.68 During 1 July 2011 to 31 December 2013 the VGU approved expenditure of $741,984 for AVO valuers, with actual expenses at $683,516 covering 77 approved engagements.

Table 7: VGU approved engagements 1 July 2011 to 31 December 2013
Source Number of
Panel 81 $2,517,684 $2,083,893
Non-panel 14 $279,356 $177,413
AVO 77 $741,984 $683,516
Unknown 1 $2,750 unknown
Total 173 $3,541,775


Source: ATO

Non-VGU valuation engagements

4.69 Some ATO business lines have previously made their own special arrangements to obtain valuation services without going through the VGU. For example, RDR business line has incurred valuations expenditure with respect to taxation disputes that are, or are likely to be, litigated. Between 1 July 2011 and 31 December 2013 the RDR business line had approved $2,802,986 in valuer costs with respect to 24 tax dispute cases.134

4.70 The RDR business line has also engaged valuers for the purpose of assisting the ATO during an independent review of a compliance case. This does not form part of the ATO's legal budget and is recorded separately in Table 8 below. This valuation service cost $82,869.

4.71 It should be noted, however, that since 11 February 2014, the RDR business line has indicated that it will no longer be responsible for incurring expenses for non-legal expert witnesses or advisors, which includes valuers, during the pre-litigation stage of disputes. The RDR business line will continue to manage non-legal expert witness expenses for disputes that have reached litigation.135

4.72 The PG&I business line has also engaged the services of an external valuer on an ad hoc basis which is facilitated by the VGU. The arrangement is in the form of an Official Order which allows PG&I officers to engage the private sector valuer for ad hoc advice at an agreed hourly rate, at a maximum of two days per month, up to a maximum value limit for the year.136

4.73 The need for such an arrangement is described below:

From time to time LB&I and the Valuation Gatekeeper require valuation services which are best described as ad hoc in nature. The ad hoc description may include valuation services which can be classified as:

  • minor general advice;
  • low cost;
  • preliminary discussions which do not necessarily lead to or result in another provider being engaged; or
  • valuation service which do not justify, on a time and cost efficiency basis, a formal stand alone engagement …

These categories of ad hoc work have been occurring with enough regularity to be viewed as a normal essential component of the ATO Valuation Gatekeeper operational requirements. They involve a level of technical knowledge greater than the general advice able to be provided by the ATO Valuation Gatekeeper.137

4.74 The actual expenditure of this PG&I ad hoc work order totalled $35,255 for the period 1 July 2012 to 31 December 2013.

4.75 The table below shows the costs of all valuation engagement by source:

Table 8: ATO expenditure on valuers
Source Engagements Approved expenditure Actual expenditure
VGU engagements from 1 July 2011 to
31 December 2013
173 $3,541,775 $2,944,823
RDR legal service engagements from
1 July 2011 to 31 December 2013
24 $2,802,986 $2,706,256
Independent Review engagements from
1 July 2011 to 31 December 2013
1 $82,869 $82,869
Ad hoc work order for PG&I from
1 July 2012 to 31 December 2013
7 $38,620 $35,255
Total 205 $6,466,250 $5,769,203

Note: ATO officers are required to obtain approval before engaging valuers. The approval provides for a limit on the amount that can be paid to the valuer. Actual expenditure may be less due to the valuation engagement not taking as much time as initially planned.

Note: The current PG&I ad hoc work order commenced on 1 July 2012.

Source: IGT collation of ATO expenditure tables

ATO instruction of valuers

4.76 Internal ATO guidance highlights the risks of incorrectly instructing or briefing experts, including valuers, in the course of audits or litigation:

Unfortunately, substantial resources and time can be spent on consulting with experts during the course of an audit only to find that, if the matter proceeds to litigation, either:

  1. the question that was asked of the expert did not elicit an opinion that can be relied on in litigation- either because the opinion extends beyond the range of the expert's expertise or because the opinion does not articulate a matter that can form part of the Commissioner's case; or
  2. the process of briefing the expert has weakened the independence and reliability of the report.

In these circumstances, it may be necessary to go back to the drawing board and either find a new expert (which is not always easy to do) or re-instruct the existing expert (which may not be possible if it is difficult to maintain the expert's independence).138

4.77 This internal ATO guidance also refers to Australian Government Solicitor (AGS) guidance which advises that experts should only address particular questions of fact and not law.139 Furthermore, the AGS guidance states that instructions to an expert should clearly state the assumptions the expert is to rely upon and that these assumptions should be limited to matters that are beyond dispute:

…if the assumptions upon which an expert opinion is based are found to be incorrect, then at the very least the persuasiveness of the opinion will be undermined. At worst, the report may be found to be of no value at all.140

4.78 Additionally, the AGS guidance emphasises the importance of providing the expert with primary or source documents to ensure the opinion is based on objectively ascertained facts. Secondary documents, such as ATO audit reports, should not be provided as it may adversely affect the independence and objectivity of the expert's opinion.

4.79 The AGS guidance also provides information about engaging 'consultants' in contrast to 'experts'. The main difference being that a consultant is engaged to assist ATO officers to understand technical concepts, and is not required to develop a formal opinion about a question of fact. Furthermore, consultants are not intended to be expert witnesses who will provide evidence during litigation. As a result, the ATO consider that there is considerable flexibility in the way the ATO can engage consultants, such as explaining commercial drivers behind transactions, providing 'guidance on documents to be obtained by the ATO' or 'suggest lines of enquiry that could be pursued'. The guidance further states that in litigation, consultants can assist by advising on:

  • the strengths and weaknesses of evidence within their field of expertise
  • documents to be sought under discovery
  • questions for cross examination; and
  • instructions to be given to an expert witness.141

4.80 This AGS guidance is no longer available to ATO officers as it was only available as an attachment to an ATO training package which was discontinued.

4.81 The ATO has advised that there is no other additional guidance provided to officers in this respect.142 However, some ATO officers have valuation experience, whilst other officers, having been former employees of the AVO, are qualified valuers with professional accreditation from various valuation professional bodies. Amongst these ATO officers are six former AVO valuers which the ATO has retained following the closure of the AVO.

Taxpayer access to ATO instructions to valuers

4.82 The ATO does not have a specific policy or process with respect to taxpayer access to ATO instructions to valuers. Valuers, like other experts, may be briefed by the ATO's internal legal area, within the RDR business line. Alternatively, the ATO may seek the assistance of counsel to not only advise on litigation such as prospects of success and undertaking advocacy work but also to ensure instructions to experts are relevant to the legal questions being addressed by counsel.

4.83 The AGS guidance mentioned above notes that, in certain circumstances, legal professional privilege may be claimed over drafts or documents produced by experts 'for the assistance of Counsel, AGS and the Commissioner.'143 In contrast, the guidance mentions that communications with consultants engaged directly by the Commissioner in the course of an audit will not be protected by legal professional privilege.144

4.84 Although the ATO does not provide guidance on its use of confidential taxpayer information as a valuation input, it has publicly stated its position with respect to the use of confidential taxpayer data in determining the arm's length price in the context transfer pricing.145 In Taxation Ruling TR 98/11, the ATO acknowledged taxpayer difficulties arising from their inability to obtain confidential information when the ATO used it as comparable data. However, the ATO considered the statutory objective did not limit its use of such information:

The statutory objective, consistent with the incorporation of the arm's length principle into our law, is to achieve the closest practicable degree of comparability with independent dealings. This outcome cannot be achieved where the ATO voluntarily restricts itself to particular sources of data. The public policy intention of ensuring that Australia receives its fair share of tax must also be considered…

In view of the above considerations, the ATO rejects the suggestion that it should be limited to publicly available third party data.146

Market valuation private rulings

4.85 MVPRs are a specific type of private ruling covered by section 359-40 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953). Upon the request of a taxpayer, this section allows the Commissioner to refer a full valuation, or a valuation review, to a valuer and charge taxpayers for those engagements. Regulation 61 of the Taxation Administration Regulations 1976 requires the Commissioner to charge the taxpayer the amount that the Commissioner was required to pay the valuer for that engagement.

4.86 Information provided by the ATO indicate that, during the period 1 July 2011 to 31 December 2013, the ATO sought valuation advice in relation to 17 private rulings, of which nine were specifically identified as MVPRs.147 These nine rulings resulted in $94,634 in approved ATO expenditure, of which two involved a valuation. The remaining seven valuation engagements involved a critique, methodology analysis, or technical advice.

4.87 As part of the MVPR process for obtaining ATO valuations, the ATO requires the taxpayers to supply the ATO sufficient information for a valuer to identify the asset to be valued and location details if required.148 Where taxpayers request ATO confirmation of an existing valuation, the taxpayer is required to send as part of their ruling application 'a copy of [their] valuation report…[which] should contain sufficient information for a valuer to replicate the valuation process.'149

International approaches

United States

4.88 In the United States, the Internal Revenue Service (IRS) has an internal team of specialist staff (known as 'engineers') whose role is to supply technical expertise to the IRS during audits (known as 'examinations'). This expertise includes the valuation of businesses, intangible property, real property and personal property.150 Valuation experts, known as 'valuators', are tasked with resolving issues as early as possible and minimise the need for litigation. They are to do so by working with the IRS requesting area and the taxpayer.151

4.89 The IRS also recognises that valuators must exercise professional judgement in coming to their conclusions and they may have to do so with incomplete information. Valuators are expected to 'decide when they have substantially enough information to make a proper determination.'152 IRS valuators must 'employ independent and objective judgment in reaching conclusions and will decide all matters on their merits, free from bias, advocacy, and conflicts of interest.'153

4.90 The IRS Office of Appeals is an independent organisation within the IRS tasked with resolving disputes between the IRS and taxpayers which may have arisen as a result of compliance activity.154 Appeals officers may be expected to resolve simpler valuation issues but are also expected to appropriately engage valuation expertise for more complex matters. These valuation experts may be drawn from within the IRS itself, such as from the 'engineers' described above. There are occasions, however, where appeals officer may use the services of an external valuator or appraiser:

In some cases you and your manager may want to have an appraisal from an independent, non-IRS appraiser. This is often the case when the taxpayer has hired an independent appraiser who is highly qualified and whose court testimony could not be easily rebutted by a valuation prepared by an IRS appraiser, who might be viewed as biased by the court. Outside appraisers are also used in specialty areas in which the IRS does not have the required expertise.155

United Kingdom

4.91 In the United Kingdom, Her Majesty's Revenue and Customs (HMRC) have access to two main sources of valuation expertise. The first is the Valuation Office Agency (VOA) which is a separate agency within HMRC that provides property valuation services and advice to the UK public sector generally. The second source is the Shares and Assets Valuation (SAV) team which is a business area within HMRC dealing with the valuation of a wide range of intangible and other assets for the purposes of the taxes that HMRC administers.

4.92 The VOA deals with the valuation of real property and tangible assets and also administers valuations for the business rates and council tax regimes. In Australia, the equivalent of these valuation regimes is administered by states' Valuers-General.

4.93 HMRC administers a number of taxes requiring valuations such as Inheritance Tax, Capital Gains Tax and the Annual Tax on Enveloped Dwellings (ATED). ATED is a type of property tax on corporate owners of residential property. The tax is a flat chargeable amount which is dependent on the four value bands into which a property may fall. Taxpayers with dwellings that have a value falling close to the threshold of the value bands have an incentive to undervalue their property in order to pay a lower ATED charge.

4.94 After assessing the possible tax at risk, HMRC may refer a taxpayer's valuation to the VOA to be checked for acceptability. The VOA officer may directly discuss the value of the property with the taxpayer and decide whether the taxpayer's valuation is acceptable or needs to be challenged with an alternative VOA valuation. As the VOA is the custodian of property survey data for the business rates and council tax regimes, it is able to quickly confirm the taxpayer's valuations or make alternative valuations.

4.95 The SAV team mainly deals with intangibles such as goodwill and intellectual property, as well as unquoted shares and other specialised assets, such as works of art. When HMRC officers check tax returns containing a valuation issue not related to real property, the valuation issue is referred to the SAV team for an initial risk assessment. Upon risk assessment, the SAV officer will advise the HMRC officer whether the valuation is acceptable and, if not, will provide an alternative estimate of value. Where the valuation is acceptable, the valuation issue is closed but the HMRC officer may continue to review any non-valuation related aspects of the tax return.

4.96 Where the taxpayer's valuation is unacceptable and the SAV officer has provided an alternative estimated value, the HMRC officer then considers the amount of tax at risk and determines whether to open a formal enquiry into the valuation issue.

4.97 Where such an enquiry is opened, the SAV officer takes over the valuation issue and deals directly with the taxpayer and their advisors in relation to information gathering and negotiation of an agreed value. The SAV officer periodically keeps the HMRC officer informed about the progress of the valuation issue.

Greater use of administrative safe harbours by the ATO

Stakeholder concerns

4.98 Stakeholders were of the view that there was additional scope to reduce the need for taxpayers to rely on valuations through the use of ATO administrative safe harbours.

4.99 Stakeholders were of the view that administrative safe harbours were particularly useful for lower risk and lower value transactions, especially for smaller taxpayers that would normally find the cost of a valuation regressive or prohibitive. They also highlighted that, in the absence of safe harbours, some taxpayers may use other shortcuts with far less accurate results posing a higher risk to the government revenue.

4.100 Although technically not a safe harbour, stakeholders pointed to the ATO's small business benchmarks as a positive development that assisted small businesses to understand the likelihood of an ATO audit with respect to the correct reporting of income and associated record keeping.

4.101 As stated in Chapter 3, examples of areas where the ATO already provides administrative safe harbours are trading stock and fuel tax credits.156

IGT observations

4.102 The IGT is of the view that the ATO should consider developing additional administrative safe harbours for tax provisions in order to reduce the compliance burden for taxpayers. This may involve consultation with stakeholders to determine which areas of tax law best lend themselves to such an approach.

4.103 In this respect, it is encouraging to note that the ATO has already begun exploring how safe harbours could be further used to 'decrease compliance costs in low-risk areas'.157

4.104 In relation to small businesses, the IGT has earlier in this report158, recommended legislative changes to reduce taxpayers' reliance on valuations to access the small business CGT concessions. In the meantime, however, the ATO could provide assistance with respect to this concession in the same manner it currently does with the small business benchmarks. The ATO website has a 'CGT small business concessions tool' to assist taxpayers to assess their eligibility for these concessions. The tool requires market values of business assets to be entered. However, taxpayers may not have these readily available and would have to obtain them at significant costs.

4.105 The IGT is of the view that the ATO could incorporate aspects of the SBIT business line's risk assessment tool, which estimates the likelihood of taxpayers breaching the $6 million MNAV threshold, into the existing website tool. Taxpayers using this improved tool could input the required financial information (which the ATO currently requests when conducting a review of a claim) and be provided with an indication of the likelihood of exceeding the threshold. Such indication may save some taxpayers the need to conduct costly market valuations for all their assets, for example, where they may be clearly eligible or ineligible.

4.106 The above would operate in a manner similar to the small business benchmarks in that both are not technically safe harbours, but rather they operate to assist taxpayers to understand the risk of ATO compliance activities and to take action accordingly.

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

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

Valuation risk assessment

Stakeholder concerns

4.107 Stakeholders were of the view that, in a self-assessment system, the ATO should accept taxpayers' reliance on valuations for simpler transactions involving smaller amounts as the costs involved in testing the inputs and process of such valuations is disproportionate to the amounts at issue. A few stakeholders suggested that the ATO might use alternative and less costly indicators for assurance, such as the qualifications of the taxpayers' valuers.

4.108 For transactions that are of higher risk, stakeholders suggested that the ATO's current use of critiques to test taxpayers' valuations were unnecessarily formal and time consuming. Their observations included that a great deal of effort and expense may go into producing a voluminous critique which only seeks to find weaknesses in the taxpayer's valuation. It may not propose an alternative value which means it cannot and should not be relied upon to amend a taxpayer's assessment.

4.109 Stakeholders also contended that much of the valuation work commissioned or undertaken by the ATO (including critiques), during compliance activities, have been found to be irrelevant or simply inadmissible in a number of cases that have progressed through to litigation.

4.110 Stakeholders were of the view that the ATO could use a higher-level risk assessment 'product' that was less formal, less expensive and quicker to develop than a critique. Stakeholders proposed that external valuers would be suitable for this role rather than ATO officers.

IGT observations

4.111 As noted earlier, the ATO's risk management approach currently does not seek to identify valuation as a specific risk flag or indicator.

4.112 ATO compliance action may involve obtaining considerable amounts of information to test inputs and processes associated with taxpayers' valuations. For high risk valuations or those involving large sums, such testing would appear appropriate. However, where lower risk transactions are concerned, the compliance costs involved may have a regressive effect as discussed in Chapter 3. The risk to government revenue may also be disproportionate to the cost for both the taxpayer and the ATO.

4.113 In relation to critiques, as noted in Table 3 above, the ATO can incur considerable expenses. The average approved expenditure of $22,257 to an extent masks the variability of the cost. When broken down by asset type, the average approved expenditure of critiques for valuation of real property and intangibles were $3,700159 and $14,786160 respectively, whilst a single critique of a valuation of a mining tenement had approved expenditure of $181,839.

4.114 In relation to the costs of critiques, as noted earlier, stakeholders felt a high level, less formal and cheaper alternative may actually be more effective. The IGT notes that the preliminary risk assessment product that appeared in the MOU between the AVO and ATO seems to be such an alternative. The ATO's data, however, indicates that this service was requested only once.

4.115 The IGT working group also considered critiques and suggested an alternative which seemed quite similar to the preliminary risk assessment engagement mentioned above. Although it was acknowledged that valuation matters can be quite complex and require significant resources, appropriately qualified and experienced valuers can often expeditiously identify the key issues or points of principle that need to be addressed. It was also suggested that such a process could have a tight engagement process to ensure it was cost effective. In addition, the external valuer would be appointed on a non-ongoing basis to ensure a balanced approach that guarded against an elongated process or inadvertent engagement creep. All parties would need to ensure the engagement mandate was clear that a preliminary risk assessment was the intended outcome and not a detailed critique or valuation.

4.116 Accordingly, the IGT is of the view that the ATO should make greater use of products such as preliminary risk assessment to quickly identify the risk associated with a taxpayer's valuation. Such a product should be developed in consultation with stakeholders to, for example, minimise the amount of information that they may have to provide for this purpose.

4.117 The ATO also needs to consider how to engage valuers for purposes of risk assessment. Their current engagement processes with respect to critiques or valuation may be too formal. As mentioned earlier, the PG&I business line currently has special arrangements with a private sector valuer for the purpose of providing informal ad hoc advice. The IGT believes that the ATO should consider this arrangement for adoption across the ATO for risk assessment purposes.

4.118 The IGT is also of the view that, where the ATO seeks to use in-house valuers for preliminary risk assessments, such as the six former AVO valuers mentioned earlier, the method of engagement and communication protocols should be the same as those for engaging private sector valuers. This is to ensure that these in-house valuers are providing advice on the basis of their professional and independent judgement in accordance with their applicable professional standards and not just as ATO employees.

4.119 To avoid unnecessary costs, before engaging valuers even for preliminary risk assessment, the ATO officers should ensure that the relevant factual and legal issues have been identified and settled as far as practicable. This may involve obtaining legal advice. For example, in the RCF case161, the valuation outcome was highly dependent on how the relevant provisions were to be interpreted. As noted earlier, the VGU currently provides guidance on these issues to ATO officers requesting valuation services.

4.120 The IGT is of the view that, depending on the finding of the preliminary risk assessment, the ATO should then consider any further action that should be taken such as commissioning a critique or full valuation or whether any identified factual and legal issues need to be resolved first.

4.121 A full valuation may not always be necessary before challenging a taxpayer's assessment. The use of critiques may be appropriate, for example, where the cost of a full valuation would be disproportionate to the risk being addressed. For cases involving substantial amounts of disputed revenue, the ATO should only amend assessments on the basis of a full alternative valuation.

4.122 If a taxpayer's assessment is to be amended, as a matter of due process, the ATO should give full reasons why the ATO rejects the taxpayer's valuation, such as by providing the calculations used in its preliminary risk assessment, critique and/or valuation.

4.123 In the event that the ATO adopts the above structured approach, it should provide guidance to its staff and taxpayer on its valuation products and how it uses them to mitigate risk and verify taxpayer compliance with the law.

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

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.

4.124 In the absence of a national accreditation scheme for all valuers162, stakeholders have also indicated that the professional qualities of the valuer could be used by the ATO in lower risk situations to quickly exclude valuations undertaken by certain valuers from scrutiny.

4.125 The IGT acknowledges the concerns of other stakeholders that the above approach risks becoming an 'ATO accreditation' regime which would not be an appropriate role for the ATO. The ATO could publish a list of those valuers that the ATO regularly uses without making any explicit endorsement.163 Such a list, however, would still resemble a de facto accreditation scheme which may inappropriately influence taxpayers' choice without sufficient regard paid to their relevant area of expertise.

4.126 Whilst there are tax-related standards for valuers with respect to the Cultural Gift Program and the GST margin scheme, the IGT believes that the costs involved in implementing similar standards across the valuation profession for all tax-related valuations would outweigh the benefits. This is because the professional qualities of a valuer are only one of several criteria the ATO uses to test the reasonableness of a valuation.

4.127 Notwithstanding the benefits of increased consumer confidence in choosing valuers, valuations are required for a multitude of non-tax related purposes. The IGT is, therefore, of the view that it would not be appropriate for the ATO to take on an actual or de facto regulatory role for valuers.

Taxpayers' instructions to valuers

Stakeholder concerns

4.128 Stakeholders have acknowledged that the reasonableness of a valuation depends on the way in which a valuer is instructed and the quality of inputs provided. However, they expressed concern that the ATO was not availing itself of the following opportunities to review taxpayers' instructions to valuers and thereby minimise the risk of disputes and costs:

  • the ATO does not encourage the use of a standard form for instructing valuers which may clearly sets out the facts, assumptions and basis for methodologies; and
  • the ATO does not take advantage of the opportunities to provide certainty to taxpayers before returns are lodged by, for example, reviewing taxpayer instructions to valuers during pre-lodgement processes such as Annual Compliance Arrangements (ACA) or PCRs.

4.129 Stakeholders have also highlighted that gaining certainty before lodgement of tax returns is likely to avoid disputes and potential interest and penalties.

4.130 Relevantly, the ATO has specifically identified taxpayer valuer instructions as part of what it regards as 'valuation process risk'.164 In this respect, the ATO holds certain expectations of those who instruct valuers:

We expect that a person commissioning a valuation for tax purposes will be able to demonstrate that they provided the valuer with instructions that clearly:

  • set out the scope and purpose of the valuation
  • ensured the valuer's independence in writing the report and in drawing conclusions
  • recognised the valuer's right to refuse to provide an opinion or report if not provided with the information and explanations they needed
  • granted the valuer access to the taxpayer's premises and the necessary records
  • ensured the valuer would be provided with all necessary help needed to complete the report, and
  • established that any fee, where levied, did not depend on the outcome of the report.

Instructions to valuers will usually be in the form of a written request or could be documented in the engagement letter.165

4.131 However, with the exception of MVPRs, the ATO does not have formal processes to review taxpayers' instructions to their valuers before tax returns are lodged.

4.132 'Potential inconsistencies in market valuations'166 are one of the types of risks that the ATO expects taxpayers to disclose during an ACA process but it does not provide taxpayers with any specific description of how valuation risks are expected to be managed. Furthermore, the ATO's public guide, Large Business Compliance Manual, refers to the management of valuation risks in the context of risk reviews and audits, but does not describe any PCR-specific process with respect to valuations.

4.133 In relation to templates for instructing valuers, the ATO itself uses a standard template for requesting valuation services through the ATO VGU167, however, it is not shared with the taxpayer.

IGT observations

4.134 Valuations are very much dependent on how valuers are instructed and the quality of inputs provided to them. Accordingly, it would be helpful if taxpayers and the ATO could agree on valuer instructions and inputs before significant costs are incurred in obtaining divergent valuations and before relevant the tax return is lodged.

4.135 In this respect, the IGT is of the view that it would be helpful if both the taxpayer and the ATO used a standard form for instructing their valuers. Such a form could clearly outline the facts, assumptions and methodology and the reasons for using that methodology. Such forms could then be exchanged between the ATO and taxpayer so that apparent differences could be easily detected and addressed.

4.136 For example, if these forms show material agreement on the facts, assumptions and methodologies, any resulting differences between the valuation of the ATO and the taxpayer are more likely to be attributable to acceptable differences in professional judgement as opposed to fundamental errors of fact. Where there are key differences in assumptions, both parties could explore the matter further to determine whether there is a legal issue at play, for example, the definition of a particular asset. If a legal issue is at play which is critical to the reliability of any facts, assumptions or methodologies, then the legal issue could be clarified, agreed, settled or litigated early168 before further costs are incurred on commencing the valuation process.

4.137 The IGT considers that, for large business taxpayers designated as 'higher consequence', the ACA and PCR processes provide a suitable platform for taxpayers to disclose valuer instructions to the ATO and initiate ATO consideration of those instructions. Such processes are intended to surface potential tax risks, including potential valuation discrepancies. Providing early ATO certainty on aspects of the taxpayer's instructions would provide opportunity for the ATO and taxpayer to address those risks at the time the valuation is being sought.

4.138 Such certainty could be provided by the ATO risk assessing the valuation instructions, discussing the assessment with the taxpayer to reach agreement on the instructions and/or to jointly instruct an independent valuer.

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 to jointly instructing an independent valuer.

ATO response

In relation to 4.3(a) – Agree

In relation to 4.3(b) – Agree


Stakeholder concerns

4.139 Stakeholders were uncertain about how the ATO took into account the taxpayer's instruction process when considering possible misstatement penalties. Stakeholders noted that there is no ATO guidance on the application of penalties for taxpayers who obtain a valuation from a relevant expert. Stakeholders were of the view that the process of undertaking valuation is a relevant factor when considering whether reasonable care was taken, whilst the actual valuation outcome itself may be a relevant factor when considering whether the taxpayer had a reasonably arguable position.

4.140 It was observed that whilst protections from penalties exist for taxpayers who appropriately engaged the services of a registered tax practitioner, no such protection exists for situations where a taxpayer relied on the services of a professional valuer. In the absence of ATO guidance, stakeholders believed that ATO officers may incorrectly consider that a lack of reasonable care penalty should apply even if the valuer was properly instructed.

4.141 The application of penalties for not having a 'reasonably arguable position' in relation to a valuation was considered in the recent Federal Court case of SPI PowerNet v FCT.169 The Court observed that one needs to identify 'what was argued for' before one can determine whether it was 'about as likely to be correct as incorrect, or is more likely to be correct than incorrect'.170 The Court held in this case that the taxpayer's position was reasonably arguable as it 'was based upon sound valuation principles and depended upon an arguable construction of the operation of s 124R(5).'171

IGT observations

4.142 The IGT notes that the ATO has not published guidance about the application of false and misleading statement penalties in circumstances involving valuation discrepancies.172

4.143 In this respect, the case of SPI PowerNet shows that it is important for a taxpayer's valuation to be based on sound valuation principles and the relevant statutory provision. The IGT is of the view that taxpayers who attempt to undertake their own valuations without adequate knowledge of valuation principles, or whose methodology or valuation hypothesis is based on an unsettled interpretation of a tax law provision, expose themselves to significant risk of not having a reasonably arguable position.

4.144 Conversely, where a taxpayer appropriately instructs a professional valuer, the assumptions or valuation hypothesis is based on a reasonable arguable construction of the relevant legislative provision and the valuation itself is conducted according to sound valuation principles, the taxpayer would likely be considered to have a reasonably arguable position regardless of the valuation outcome.

4.145 The IGT also considers that the ATO could provide greater guidance regarding the application of penalties to valuation discrepancies. Such guidance may also assist taxpayers to decide on the trade-off between the cost of the valuation and the likelihood of ATO challenge, amendment and penalties. Where taxpayers have followed such guidance when instructing a valuer, they should be regarded as more likely to have taken reasonable care.

Recommendation 4.4

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

ATO Response


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.

Valuation capability within the ATO

Stakeholder concerns

4.146 Stakeholders were of the view that, although it was appropriate that ATO officers need not necessarily be professional valuers to conduct compliance activities, those officers needed some level of valuation skill to recognise valuation issues, gather the relevant information and instruct appropriate valuers.

4.147 Stakeholders were of the view that ATO officers currently lack the capability to quickly detect when a valuation issue is likely to arise during a compliance case. As a result, stakeholders observed that valuation expertise were often brought late in the compliance process with compliance officers providing unreasonable deadlines for the valuation to be completed and thereby compromise the quality of the resulting valuation.

4.148 It was also observed that the information required to support a valuation is different to that used to support other propositions of fact or law. Stakeholders were of the view that ATO officers needed a better understanding of the evidence required to reject or accept a taxpayer's valuation in order to ensure that information requests were appropriately targeted.

4.149 Stakeholders also raised concerns that some ATO officers inadequately or narrowly instruct valuers leading to a valuation outcome that was likely to result in a dispute. This was attributed to ATO officers' inability to provide valuers with correct facts and assumptions.

IGT observations

ATO officer recognition of valuation issues

4.150 The ATO no longer has a significant body of in-house valuation expertise, unlike the USA's IRS and the UK's HMRC. The AVO, which no longer exists as mentioned earlier, had operated in a similar fashion to the UK's VOA in that it dealt mainly with tangible assets and real property. However, it did not administer valuations for council rates as the VAO does. As such, the AVO had no control over the type and quality of data that would be needed to quickly make valuations of real property.

4.151 If the ATO were to re-establish an in-house valuation function, the ATO would likely need to hire significant numbers of valuers to cover the range of assets subject to tax-related valuations. Maintaining the currency of those valuers' expertise and developing their capability in new and emerging areas may make it impractical and costly for the ATO to manage the function efficiently and effectively.

4.152 The ATO's current use of private sector valuers gives the ATO access to a wide pool of expertise that can be engaged in a flexible manner. As long as conflicts of interest and issues of independence are appropriately managed, these arrangements allow the ATO to draw on the expertise as and when required. The VGU's management of formal valuation engagements should assist the ATO in filtering unnecessary engagement requests and selecting the best available valuers for the needed circumstances.

4.153 Notwithstanding the access to private sector experts, concerns remain with aspects of ATO compliance officer capability in dealing with valuation issues. ATO compliance officers are not expected to be valuation experts. However, in light of the increasing use of valuation concepts in tax legislation and the closure of the AVO, the IGT is of the view that the ATO should, over the long term, seek to increase the overall valuation capability of those officers that may deal with valuation matters.

4.154 The IGT considers that the ATO could make greater use of private sector valuers, as well as its own valuers, to assist in improving its valuation capability in the short term. In addition to the preliminary risk assessment role that valuers could perform for the ATO as described earlier in this chapter, these valuers could also assist with the design and delivery of learning and development products to improve ATO officer capability in recognising valuation risks.

4.155 The ability of the ATO to engage valuation expertise early in compliance cases is dependent upon not only the capability of ATO officers to detect valuation risks but also whether the factual and legal issues have been reasonably settled.

4.156 As noted earlier, the example of Division 7A shows that a case may continue for a long time before the legal and factual issues are resolved. Once resolved, the valuation task may begin late in the case timeframe and prolong the case. The ATO could seek to reduce timeframes by undertaking valuations in parallel with the legal and factual analysis. However, this approach risks unnecessary valuation expenses where the parties' views of the facts and application of the law change.

ATO information gathering

4.157 The IGT is of the view that understanding the evidentiary requirements for accepting or rejecting a taxpayer's valuation may be a complex task as it may require some legal knowledge regarding evidence as well as specific valuation knowledge. ATO compliance officers should consider obtaining legal and valuation advice as to the evidence required to verify the valuation.

4.158 Despite the difficulties in developing this capability, it is an important step in ensuring that the ATO's valuers are promptly provided with all the factual material needed to test the valuation whilst ensuring that taxpayers are not subject to excessive information requests.

ATO officer instruction of valuers

4.159 During the review, the IGT was made aware of a significant case which turned on how ATO officers had instructed its valuers. The ATO has advised that the key learning from this case was to ensure valuers were correctly instructed and that instructions take into account the precise requirements of the valuation task, in light of the specific statutory scheme to which the valuation related. During the review, valuers had confirmed that the standard of ATO officer instructions varied in consistency and was of a lesser quality than those from the AGS.

4.160 In this respect, the AGS guidance described earlier provides valuable instruction on the risks of incorrectly instructing valuers and how those risks should be addressed. As the ATO has not replicated this guidance elsewhere, the IGT considers that the ATO should update its policies and procedures dealing with valuations to provide this AGS guidance. Recommendation 4.3 above for a standard template for valuer instructions will also assist ATO officers to improve their instructions to valuers.

4.161 As noted earlier, the PG&I business line contracts private sector valuers on an ad hoc basis. The IGT is of the view that the ATO could make greater use of these types of ad hoc or consulting arrangements to improve ATO officer capability in instructing valuers.

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

ATO sharing valuer instructions with taxpayers

Stakeholder concerns

4.162 Stakeholders raised concerns that the ATO was reluctant to grant taxpayers access to its instructions although on occasions it has been for valid reasons such as:

  • use of confidential information as valuation inputs which had been obtained from other taxpayers; and
  • claims of legal professional privilege as counsel had been engaged to instruct the valuer.

4.163 Stakeholders have also contended that the only way that they can get access to the ATO's valuation instruction is through Freedom of Information (FOI) requests.

4.164 Stakeholders were of the view, that despite any internal ATO measures to ensure valuers were correctly instructed, sharing instructions with the taxpayer would be a useful step to ensure that any errors or omissions were corrected before the ATO's valuers undertook their task.

IGT observations

4.165 Notwithstanding internal ATO quality assurance measures noted earlier, shortcomings in instructions to valuers may be identified by allowing taxpayer to have access to the ATO's instructions. Providing such taxpayer access would also assist in reducing unnecessary costs and disputation as fundamental differences of opinions in relation to the facts, assumptions or related legal issues would be identified, addressed and/or resolved before additional valuations are undertaken.

4.166 Furthermore, the IGT is of the view that taxpayers should be fully aware of the case against them and be given an opportunity to test the facts and assumptions used by the ATO's valuer. Taxpayers should not have to resort to making FOI requests in order to obtain the ATO's instructions to its valuers. Notwithstanding any legal professional privilege that may apply when valuers are instructed by ATO legal officers or counsel, the ATO should voluntarily provide this information to taxpayers on an informal basis.

4.167 Another barrier to sharing ATO's instructions to valuers with relevant taxpayers is that the ATO cannot disclose confidential information which is used as an input for valuation instructions. This ATO view is expressed in a public ruling relating to arm's length prices in the transfer pricing provisions and in a recent IGT report.173

4.168 The IGT is of the view that the valuation requirements in tax provisions other than transfer pricing should be treated differently as the policy intent differs for transfer pricing where the main aim is to ensure 'Australia receives its fair share of tax'.174 The concept of market value in other tax context seems to suggest that the ATO should limit its use of information to that which is available to the market or taxpayers who are expected to act 'knowledgeably, prudently and without compulsion'.175

4.169 The IGT considers that it is fundamental to the efficient resolution of valuation disputes that the parties rely on information that is available to both of them. The IGT is, therefore, of the view that the ATO should only use information that would be available to a knowledgeable and prudent taxpayer.

4.170 It should also be noted even if the ATO were to continue using confidential information, such information may have to be disclosed if the matter proceeds to litigation.

Recommendation 4.6

The IGT recommends that the ATO:

  1. allow taxpayer access to its instructions to valuers; and
  2. only use publically 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

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.

Taxpayers' burden of proof and valuation ranges

Stakeholder concerns

4.171 As a valuation is effectively an opinion, a valuation may yield a specific value (also known as a 'point estimate') or a reasonable range of values. Stakeholders were concerned that the taxpayer's burden of proof (of proving in tax litigation that the ATO assessment is excessive176) operates to unfairly favour the ATO where the only differences between taxpayer and ATO valuations were attributable to acceptable differences of professional judgement. In these circumstances, taxpayers who have obtained an independent valuation that is reasonable cannot be certain that the ATO will accept their valuation in whole or part.

4.172 Certain stakeholders were also of the view that where the ATO's and taxpayer's valuation ranges overlap, the ATO should accept any taxpayer proposed value within that overlapping area. Other stakeholders cautioned against a blanket approach to overlapping ranges, citing complexities associated with defining a 'range' and the possibility of encouraging behaviours that seek wider ranges as a means of manipulating this approach.

4.173 In respect of the tax laws, specific values are required to be reported for certain tax purposes. The valuer, however, may provide a range of possible values.177 Although the ATO recognises that valuation involves a subjective assessment178, the ATO expects that such a range will be 'reasonable' regardless of the valuer or the method adopted179 and that taxpayers will be able to justify the specific value chosen within that range.

4.174 The ATO has advised that it 'does not have any particular policy in obtaining a specific value from a valuer and does not have any guidance or a standard approach with respect to selecting a specific value.'180 However, the ATO intranet page 'Using valuers in litigation' provides some guidance to ATO officers about 'tolerances' for divergent valuations. It suggests a 10 per cent materiality threshold consistent with AASB 1031:

A divergence in market value of less than 10% is unlikely to attract judicial support on review and may not justify the resources necessary to secure adjustment. On the other hand, it is expected that gross misvaluations or misallocations would be pursued through to litigation if necessary, depending on the risk involved. Other substantial misvaluations may nevertheless be subject to risk assessment and challenge, as determined under ATO risk management procedures.181

IGT observations

4.175 Taxpayers have the burden of proof in relation to valuation matters. As noted earlier, valuations are opinions which are typically expressed as ranges, not absolute amounts. They include a point estimate which is the most likely value out of many possible values within the range.

4.176 Even where taxpayers and the ATO agree on the facts and legal issues as well as instructions given to the valuer, point estimates of both parties may differ. However, the IGT is of the view that, in these circumstances, the ATO should have a basis on which to accept a taxpayer's valuation. This would be consistent with principles of a self assessment system.

Applying a 10 per cent tolerance to point estimates

4.177 Drawing on the ATO guidance materials and AASB position outlined above, one option to address the above differences in point estimates is for the ATO to accept the taxpayer's point estimate if it falls within 10 per cent of its own. This 10 per cent tolerance on either side of the ATO's point estimate would be a helpful starting point but may be expanded upon and used in a pragmatic manner that reduces disputation and provides greater certainty for taxpayers.

4.178 Where the taxpayer's point estimate diverges from the ATO's point estimate by more than 10 per cent, it may be useful for both parties to consider whether the taxpayer's range overlaps with the ATO's range. Where there is some overlap, this may be a useful starting point for further discussions between valuers on the reasons for the divergence. Recommendation 4.6 above, which facilitates taxpayer access to the ATO's instructions, would also assist in this regard.

Figure 2: Overlapping valuation ranges

Scenario 1: The taxpayer’s point estimate (blue arrow) for capital proceeds from a CGT event is within 10 per cent of the ATO’s point estimate (pink arrow) and should be accepted by the ATO.

Figure 2 Scenario 1: The taxpayer’s point estimate (blue arrow) for capital proceeds from a CGT event is within 10 per cent of the ATO’s point estimate (pink arrow) and should be accepted by the ATO.

Scenario 2: The taxpayers point estimate (blue arrow) does not fall within 10 per cent of the ATO’s point estimate (pink arrow). The ATO should conduct negotiations/discussions in light of the overlap of ranges.

Figure 2 Scenario 2: The taxpayers point estimate (blue arrow) does not fall within 10 per cent of the ATO’s point estimate (pink arrow). The ATO should conduct negotiations/discussions in light of the overlap of ranges.

Source: IGT

4.179 There may be certain circumstances where the 10 per cent range may not be completely appropriate. The circumstances where that would arise may be rare or manifestly obvious from the particular market in which the valuation is being considered and may justify a narrower valuation range. Conversely, where valuation ranges are wide due to a greater degree of uncertainty attaching to the given market, then a broader dialogue may be required to ascertain the appropriateness of the taxpayer's adopted valuation amount.

Determining the appropriate width of ranges

4.180 One way of ensuring that a proposed valuation range is of appropriate 'width' is by recognising the role of confidence levels and the costs of valuation in determining the range.

4.181 There is a trade-off in the relationship between the level of confidence in a given range, the width of the range as well as the information, research and cost associated with the valuation as explained in Chapter 2. This relationship is shown diagrammatically below:

Figure 3: Valuation trade-off between confidence, range and cost

Figure 3: Valuation trade-off between confidence, range and cost. A blue triangle. At the top point are the words 'Width of range'; at the left hand point are the words 'Amount of data and analysis required and associated costs'; at the right hand point are the words 'Level of confidence that the actual value will fall within that range'.

Source: IGT

4.182 It is impractical, if not impossible, for the ATO or another administrator to expect taxpayers to obtain a valuation where the valuer was 100 per cent confident that one specific value was the only reasonable value. Even if it were possible to achieve such a level of certainty, the costs would be prohibitive. In recognising practicalities and the need to manage compliance costs, it is important that the ATO acknowledge commercially realistic valuations are likely to involve a combination of a range of values and a confidence level that is less than 100 per cent.

4.183 The IGT is of the view that another option to improve the framework and provide greater certainty is for a standard level of qualitative and quantitative confidence to be accepted for particular valuations for tax purposes. The objective of the standard level of confidence is to provide guidance to taxpayers, the ATO and valuers about the rigour expected of a valuation whilst ensuring valuation costs do not unnecessarily escalate.

4.184 Acting as a minimum, the standard confidence level mitigates the risk of the ATO having unreasonable expectations about the narrowness of a valuation range, as a very narrow range either requires a reduction in the confidence level or increases costs as a result of additional data and analysis required.

4.185 Conversely, as a ceiling, the standard confidence level may reduce the risk of an ATO challenge of the taxpayer's valuation and increase certainty of the intended outcome for tax purposes by accommodating a range that the ATO may otherwise reject as too wide were it not for the standard confidence level.

4.186 Depending upon the level of confidence for a valuation range, taxpayers may have stronger grounds to choose the mid-point of that range as their point estimate for tax purposes.

4.187 In the event of an ATO challenge to a taxpayer valuation, the ATO valuation should apply the same standard level of confidence to produce a given range and a consequent mid-point for the ATO's point estimate.

4.188 Whilst it is likely that the point estimates of the ATO and the taxpayer will differ, the ranges may assist both parties in exploring a compromise as both parties have a common understanding as to the rigour of those ranges. The IGT is of the view that, similar to the Scenario 1 in Figure 2 above, where a taxpayer's original self-assessed point estimate is within the ATO's valuation range, the ATO should accept the taxpayer's valuation. The advantage of this approach, however, is that neither the taxpayer nor the ATO are constrained by an arbitrary 10 per cent range when determining whether to accept the taxpayer's point estimate.

4.189 There are, however, a number of limitations with the above approach. First, the approach proceeds on the assumption that values are normally distributed and, hence, it is not suitable where non-normally distributed values are at play.

4.190 Secondly, valuers would need to measure the confidence level of their valuations to show that it met this proposed standard confidence level. For valuations where there is a lack of input data, or such inputs are heavily reliant on professional judgement, it may be impractical to calculate a quantitative level of confidence.

4.191 For valuations which are more reliant on plentiful quantitative data, it may be more feasible to establish a quantitative level of confidence. However, where there is uncertainty attaching to several inputs, determining the confidence level for a range may be a complex process, potentially increasing costs for both the taxpayer and the ATO. As noted in Chapter 2, the IVSC recognises the difficulties associated with quantifying uncertainty and advocates the use of qualitative descriptions instead.

ATO valuer opinion of taxpayer point estimate

4.192 The IGT is of the view that ATO valuations should not only serve to produce an alternative point estimate, but they should also seek to provide a mechanism to allow ATO officers to be pragmatic and accept the taxpayer's point estimate where appropriate.

4.193 An ATO preliminary risk assessment or critique may provide a prima facie basis to accept or challenge the taxpayer's valuation. Where the matter has been escalated to a full valuation, the ATO valuer undertaking the full valuation task is also in a good position to consider the reasonableness of the taxpayer's point estimate. Such a valuer has not only considered the taxpayer's inputs and methodology, but has also had to assemble their own inputs and apply their own methodology. This allows the valuer to compare the respective approaches and give an opinion on whether the taxpayer's point estimate was reasonable, or whether there were aspects of the taxpayer's valuation (such as particular inputs or methodology) that were unreasonable.

4.194 In addition, where the valuer engaged by the ATO is of the opinion that the taxpayer's point estimate is reasonable, this should be a basis on which to accept the taxpayer's point estimate, notwithstanding that it is different to the ATO's point estimate. Such an approach is expected to ameliorate disputes and provide accommodation around the costs associated with the taxpayer's burden of proof. Where the ATO does not accept the taxpayer's valuation, notwithstanding that it was regarded as reasonable by the ATO valuer, the ATO should clearly communicate to the taxpayer the reasons for rejecting it.

4.195 Where the valuer engaged by the ATO was of the opinion that the taxpayer's point estimate was unreasonable, the ATO should also communicate that outcome and reasons for it to the taxpayer.

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


Market valuation private rulings

Stakeholder concerns

4.196 As noted earlier, taxpayers may seek ATO binding advice on valuations through the MVPR process which allows taxpayers to obtain, at the taxpayer's expense, an ATO valuation or ATO confirmation of a taxpayer valuation. However, as shown by ATO statistics and submissions to this review, the MVPR process is rarely used and one professional body noted that the limited feedback from its members indicated a positive experience for larger businesses, but not SME taxpayers.

IGT observations

4.197 The IGT is of the view that the underutilisation of the MVPR system may be due to several factors.

4.198 First, the Commissioner is required to pass on the costs of a valuation to the taxpayer. For a taxpayer seeking a valuation, these costs may be comparable to the costs they would bear if they had obtained a valuation without ATO involvement. As the ATO appoints the valuer and controls the instruction process, the certainty gained from a private ruling on a valuation matter may not outweigh the relinquishing of control over the appointment and instruction process whilst bearing the costs. Although a small sample size, it is perhaps telling that only two out of the nine identified MVPRs involved an actual valuation, with the remainder in the nature of a confirmation of the taxpayer's original valuation.182

4.199 The IGT is of the view that the ATO may be able to address some of the above factors by jointly appointing the valuer and allow the taxpayer greater access to the valuer so that the taxpayer has a greater degree of confidence with the instruction process.

4.200 The ATO could also consider bearing some of the cost of the MVPR valuation as it would relieve the ATO from having to obtain its own critique or valuation. However, this may require changes to the relevant regulations.

4.201 Secondly, the ATO has publically stated that it 'generally will not rule on the market value for a future event'.183 This narrows the scope of MVPRs and their usefulness for taxpayers wishing to plan future transactions.

4.202 Thirdly, there may be a lack of awareness of the availability of MVPRs. Notwithstanding its brief description in ATO publications, there may be opportunity for the ATO to further promote this service to raise awareness of its availability.

4.203 The IGT is of the view that in certain circumstances taxpayers should be able to obtain an advanced ATO view on the acceptability of valuation instructions prior to obtaining a valuation. This could be done by way of either sharing the taxpayer's instructions with the ATO before or at the same time as instructing the valuer or inviting the ATO to jointly instruct the taxpayer's valuer.

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 MVPRs 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

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.

97 For more detail about these obligations and how the ATO addresses them, see Chapter 2 of the IGT's Review into aspects of the ATO's use of compliance risk assessment tools (February 2014).

98 ATO, 'Compliance In Focus 2013-14',

99 The exceptions to this general rule are that only 'professional valuers' may provide market valuations for certain GST purposes and only 'approved valuers' may provide valuations under the Cultural Gift Program.

100 Above n 15; See also ATO, Valuation guidelines for self-managed super funds (2014) .

101 Above n 3, p 5.

102 Above n 3, p 4.

103 Above n 3, p 3.

104 Australian Valuation Office, Memorandum of Understanding between the Australian Valuation Office and the Australian Taxation Office (7 June 2012) Schedule 1, p 4.

105 ATO/IGT meeting, 24 February 2014.

106 Above n 104.

107 ATO, Large Business Bulletin (December 2013) p 8.

108 ATO, Large business active compliance manual – income tax (14 March 2014),

109 Ibid para [2.5.1].

110 Ibid para [6.5.1].

111 Ibid para [10.5].

112 Ibid para [10.5.4].

113 See Table 6.

114 Wealthy Australians control net wealth over $5 million. High wealth individuals control net wealth over $30 million.

115 ATO, Tax compliance for small-to-medium enterprises and wealthy individuals (26 October 2012),

116 Ibid.

117 Ibid.

118 See Table 6.

119 ATO, 'Risk Treatment Plan Capital Gains Tax in the Micro Market 2012-13' (Internal ATO Document, 4 March 2013).

120 See Table 6.

121 ATO, 'SBIT Valuation Sequence Draft 3' (Internal ATO Document), provided to the IGT on 8 May 2014.

122 Above n 15 Table F1.

123 ATO communication to the IGT, 7 and 9 May 2014.

124 ATO, 'Early dispute resolution attempts: valuation-related audit issues' (Internal ATO Document, 22 September 2010).

125 ATO, 'Using valuers in litigation' (Internal ATO Document, 8 November 2013).

126 ATO, 'Expert witness' (Internal ATO Document, 31 March 2010).

127 ATO, 'Our approach to information gathering' (8 April 2014),

128 Income Tax Assessment Act 1936 ss 109C, 109Y.

129 Income Tax Assessment Act 1997 s 820-690.

130 IGT communication with the ATO's VGU, 19 December 2013.

131 Commissioner of Taxation, Annual Report 2012-13 (2013) p 65.

132 Australian Government, Productivity Commission, Australian Government Competitive Neutrality Complaints Office, Australian Valuation Office AGCNCO Investigation Report 11 (21 May 2004).

133 Income Tax Assessment Regulations 1997, Regulation 30-212.02.

134 ATO communication to the IGT, 16 April 2014.

135 ATO, 'Office Minute: Clarification of arrangements for expenditure on legal services' (Internal ATO Document, 11 February 2014).

136 ATO communication to the IGT, 16 April 2014.

137 ATO, 'Office Minute to Assistant Deputy Commissioner LB&I regarding approval to vary an Official Order' (Internal ATO Document, 16 September 2012).

138 Above n 126.

139 Australian Government Solicitor, A Guide to the Use of Experts in ATO Audits and Litigation (undated).

140 Ibid p 7.

141 Ibid p 9.

142 ATO communication to the IGT, 24 April 2014.

143 Above n 139, p 8.

144 Above n 139, p 9.

145 ATO, Income tax: documentation and practical issues associated with setting and reviewing transfer pricing in international dealings, TR 98/11 (24 June 1998).

146 Ibid para [9.21].

147 ATO communication to the IGT, 10 April 2014.

148 ATO, Supporting document requirements for private rulings – determining or confirming the value of a thing,

149 Ibid.

150 Internal Revenue Service, Internal Revenue Manual, para [].

151 Ibid para [].

152 Ibid para [].

153 Ibid para [].

154 Internal Revenue Service, Appeals – About the Office of Appeals (16 June 2014),

155 Business Valuation Resources, Valuation Training for Appeals Officers Course Book (January 1997) p 17,

156 Chapter 3 paras [3.40] and [3.41].

157 ATO, National Tax Liaison Group March 2014 minutes (19 May 2014) item 2.2,

158 Recommendation 3.2 of this report.

159 Six real property critiques totalling $22,000.

160 Eight critiques of businesses, shares, goodwill and intellectual property totalling $118,290.

161 Resource Capital Fund III LP v Commissioner of Taxation [2013] FCA 363 at [98]-[108].

162 See Chapter 2 paras [2.15] to [2.25].

163 See para [4.57] for background information on the ATO's panel of valuers.

164 Above n 15, Table F1.

165 Above n 15.

166 ATO, Annual compliance arrangements (7 June 2013)

167 ATO, 'Request for valuation services' (Internal ATO Document).

168 By way of declaratory proceedings: see IGT, Review into the Australian Taxation Office's Use of Early and Alternative Dispute Resolution (July 2012) para [4.63].

169 SPI PowerNet Pty Ltd v Commissioner of Taxation [2014] FCA 261, para [53].

170 Ibid, para [55].

171 Ibid.

172 In his previous Review of the ATO's administration of penalties, the IGT foreshadowed that this current review would consider valuation-related penalty issues.

173 See IGT, Review into the ATO's Management of Transfer Pricing Matters (June 2014) para [3.13]. The ATO would not publish the comparable data it uses for transfer pricing matters due to confidentiality issues.

174 Above, n 145, para [9.22].

175 Above, n 8.

176 Income Tax Assessment Act 1936 ss 14ZZK-14ZZO.

177 Above n 15.

178 Above n 125.

179 ATO, 'Valuations Issues Paper' (12 January 2012),

180 ATO communication to the IGT, 16 April 2014.

181 Above n 125.

182 See para [4.86] above.

183 Above n 15.