The Administrative Appeals Tribunal (AAT) has ruled that the “market value” of a parcel of shares in a private company that a taxpayer sold in an arm’s-length transaction (together with the other two shareholders’ shares in the company) was not the proportion of the sale price he received from the sale of all the shares. Instead, the AAT agreed it was a discounted amount; the taxpayer was a “non-controlling” shareholder, so the market value was less than simply his one-third share of the sale price.

As a result of this AAT decision, the taxpayer passed the $6 million “maximum net asset value test”, allowing him to qualify for small business capital gains tax (CGT) concessions, where otherwise he would not have.

The Commissioner has appealed to the Federal Court against this AAT decision.

TIP: This decision demonstrates that the actual selling price of an asset may not always represent its “market value”. In this decision, the AAT agreed with the taxpayer’s valuer that “all other things being equal, the average price per share of a controlling shareholding will be higher than the average price per share of a non-controlling shareholding because of the value of control”.


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