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29 May 09 Submission on draft GST Margin Scheme Valuation Requirements Determination

The Taxation Institute has lodged its submission on the draft A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 200X/1 and draft MSV 200X/1 Explanatory Statement with the ATO. The submission sets out a number of amendments which it is believed should be made to MSV 200X/1. These include the following:

  • Method 4: Substitution by the Commissioner; notification by the Commissioner - This allows the Commissioner to obtain an approved valuation in circumstances where a valuation has not been produced by a vendor entity seeking to apply the margin scheme or the valuation produced is not an "approved valuation" as determined by the Commissioner. The Taxation Institute submits that MSV 200X/1 should require the Commissioner to include in his notification the reasons why he considers a valuation provided by a vendor entity is not an approved valuation under the determination. This will provide the taxpayer with a meaningful basis on which to rectify a valuation within the requisite 8 week period. It is also considered to be appropriate that the Commissioner have regard to circumstances where it may be appropriate to issue the notification to both the vendor entity and the purchasing entity, for example, where the Commissioner knows that the purchaser entity obtained the valuation.
  • Method 4: Substitution by the Commissioner; method chosen by the Commissioner - There appear to be few guidelines as to which of Methods 1, 2 or 3 the Commissioner will consider appropriate in given circumstances. Additional guidelines should be stipulated, within MSV 200X/1 and, in greater detail (possibly also by way of a practice statement), as to which method the Commissioner will adopt and on what basis. It is not appropriate that the Commissioner be empowered by MSV 200X/1 to apply a method that is manifestly inappropriate in a given set of circumstances.
  • Method 4: Substitution by the Commissioner; valuation obtained by the Commissioner - MSV 200X/1 should require the Commissioner to produce a copy of any valuation he obtains under Method 4 to the vendor entity. This requirement is essential in order for taxpayers to be capable of ensuring that the Commissioner's valuation complies with the appropriate methodology.
  • Method 4: Substitution by the Commissioner; timing of Method 4 valuation - It is not clear on the face of the determination what the consequences will be in the event that the Commissioner does not obtain a valuation within the specified 8 week period. There is no reason why the Commissioner should be confined to obtaining his valuation within 8 weeks.
  • Method 2: Consideration - It is unclear how this method will apply where the consideration provided did not include an amount of GST because the parties treated the sale as a GST-free supply of a going concern. It is submitted that MSV 200X/1 should specifically address the question of the value in these circumstances. There is a strong argument that the value is the GST-inclusive consideration, notwithstanding that the parties have agreed to apply the exemption available in the GST Act. Equally, if there are settlement adjustments pursuant to the contract, they should also be taken into account and canvassed in MSV 200X/1.
  • Prospective/retrospective application of MSV 200X/1 - Where the Commissioner has previously determined the methodology for obtaining a valuation in a previous period (ie, prior to 1 December 2005), and taxpayers have made a bona fide effort to comply with those requirements, the Commissioner should not be empowered to obtain his own valuation using a different methodology. It is submitted that any valuation obtained by the Commissioner in respect of supplies made prior to the commencement of MSV 200X/1 should be prepared with reference to the valuation requirements under the determination that was in force at the time of the supply.
  • Terminology - The Taxation Institute queries the use of a number of terms and expressions which have not been defined and which may lead to uncertainty for taxpayers. These include: property valued on an "as is" basis; an interest, unit or lease that is "derived"; "Commissioner may for good reason".
For a copy of the submission go here.

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