Capital Gains Tax (CGT) 2012

An evaluation of control premium and its tax implications

Source: The Tax Specialist Journal Article

Published Date: 1 Oct 2012


A correct understanding and assessment of control premium has direct implications for the outcome of a principal asset test required to determine whether or not a foreign resident is liable to Australian capital gains tax arising from a capital gain on a sale of shares in a company and the assessment of enterprise value and goodwill value for tax purposes under the top-down residual method. Unfortunately, such understanding has proved elusive in practice.

This article discusses the important distinction between ex-ante control premium and ex-post observed takeover premium and the incorrect practice of mechanistically assessing the ex-ante control premium for an entity which has not been subjected to a takeover bid as at the valuation date based on average observed ex-post takeover premium. In fact, achieving the correct understanding and assessment of control premium for a given entity requires significantly complex and lateral valuation thinking.

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  • Published By: Hung Chu
  • Published On:1 Oct 2012

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Unless expressly stated, opinions are not that of The Tax Institute, which accepts no responsibility for the accuracy of any of the information contained within it.

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Capital Gains Tax (CGT) 2012

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